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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  
 For the quarterly period ended June 30, 20202021

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  
 For the transition period from ___________ to ___________
  
 Commission File Number: 1-12911

GRANITE CONSTRUCTION INCORPORATED

State of Incorporation:

I.R.S. Employer Identification Number:

Delaware

77-0239383

Address of principal executive offices:

585 W. Beach Street

Watsonville, California 95076

(831) 724-1011

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value 

GVA

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐Yes ☒☒Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☐Yes ☒☒Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒

 Accelerated filer ☐

 Non-accelerated filer ☐

 Smaller reporting company ☐

 Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of FebruaryJuly 22, 2021.

Class

 

Outstanding

Common stock, $0.01 par value

 

45,676,82745,820,690

 

 

 

EXPLANATORY NOTE

As disclosed in our 2019 Annual Report on Form 10-K, in February 2020, the Audit/Compliance Committee of the Company’s Board of Directors, assisted by independent counsel, initiated an investigation of prior-period reporting for the Heavy Civil operating group, and the extent to which these matters affect the effectiveness of the Company’s internal control over financial reporting (the “Investigation”). The Investigation is now complete. We have restated our consolidated financial statements as of December 31, 2018, and for the years ended December 31, 2018 and 2017 and our unaudited quarterly financial information for the first three quarters in the year ended December 31, 2019 and for each of the quarters in the year ended December 31, 2018 in our Annual Report on Form 10-K for the year ended December 31, 2019 filed on February 22, 2021 to correct misstatements associated with project forecasts in the Heavy Civil operating group (the “Investigation Adjustments”) discovered in connection with the independent Investigation. In addition to the Investigation Adjustments, we corrected additional identified out-of-period and uncorrected misstatements that were not material, individually or in the aggregate, to our consolidated financial statements. We have reflected the impact of the restatement on our unaudited condensed consolidated financial information as of and for the three and six months ended June 30, 2019 herein. See Note 3 of “Notes to the Condensed Consolidated Financial Statements” for additional information.

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Index

EXPLANATORY NOTE

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

 

 

Condensed Consolidated Balance Sheets as of June 30, 2020,2021, December 31, 20192020 and June 30, 20192020

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 20202021 and 20192020

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 20202021 and 20192020

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 20202021 and 20192020

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 20202021 and 20192020

 

 

Notes to the Condensed Consolidated Financial Statements

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

Item 4.

Controls and Procedures

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

Item 1A.

Risk Factors

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

Item 4.

Mine Safety Disclosures

 

Item 6.

Exhibits

SIGNATURES

EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5

EXHIBIT 31.1

EXHIBIT 31.2

EXHIBIT 32

EXHIBIT 95

EXHIBIT 101.INS

EXHIBIT 101.SCH

EXHIBIT 101.CAL

EXHIBIT 101.DEF

EXHIBIT 101.LAB

EXHIBIT 101.PRE

EXHIBIT 104

 

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PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited - in thousands, except share and per share data)

       

As Restated

 
 

June 30, 2020

 

December 31, 2019

 

June 30, 2019

  

June 30, 2021

 

December 31, 2020

 

June 30, 2020

 

ASSETS

               

Current assets

        

Cash and cash equivalents ($93,500, $78,132, and $115,933 related to consolidated construction joint ventures (“CCJVs”))

 $288,922  $262,273  $144,958 

Short-term marketable securities

 0  27,799  41,037 

Receivables, net ($31,978, $29,564 and $31,656 related to CCJVs)

 596,922  547,417  564,543 

Contract assets ($26,075, $25,034 and $17,371 related to CCJVs)

 191,919  211,441  224,389 

Cash and cash equivalents ($107,854, $74,819 and $93,500 related to consolidated construction joint ventures (“CCJVs”))

 $393,181 $436,136 $288,922 

Receivables, net ($49,408, $56,147 and $31,978 related to CCJVs)

 646,940 540,812 596,922 

Contract assets ($41,815, $33,838 and $26,075 related to CCJVs)

 194,483 164,939 191,919 

Inventories

 105,023  88,885  101,686  88,424 82,362 105,023 

Equity in construction joint ventures

 183,542  193,110  220,247  195,430 188,798 183,542 

Other current assets ($14,392, $13,350 and $11,440 related to CCJVs)

 57,614  46,016  80,560 

Other current assets ($12,142, $13,252 and $14,392 related to CCJVs)

 47,976 42,199 57,614 

Total current assets

 1,423,942  1,376,941  1,377,420  1,566,434 1,455,246 1,423,942 
Property and equipment, net ($27,256, $31,136 and $31,560 related to CCJVs) 540,053 542,297 558,378 

Property and equipment, net ($20,206, $23,704 and $27,256 related to CCJVs)

 517,143 527,016 540,053 
Long-term marketable securities 5,896 5,000 20,000  10,850 5,200 5,896 
Investments in affiliates 74,511 84,176 82,109  75,625 75,287 74,511 
Goodwill 248,690 264,279 264,107  116,839 116,777 248,690 
Right of use assets 72,244 72,534 73,439  59,219 62,256 72,244 

Deferred income taxes, net

 40,926  50,158  28,249  41,085  41,839  40,926 
Other noncurrent assets 102,392 106,703 120,915  91,703 96,375 102,392 
Total assets $2,508,654 $2,502,088 $2,524,617  $2,478,898 $2,379,996 $2,508,654 
  

LIABILITIES AND EQUITY

               

Current liabilities

        
Current maturities of long-term debt $8,253 $8,244 $48,397  $8,709 $8,278 $8,253 
Accounts payable ($56,315, $57,795 and $50,338 related to CCJVs) 358,401 400,775 302,651 
Contract liabilities ($69,688, $20,994 and $28,702 related to CCJVs) 159,818 95,737 128,443 

Accrued expenses and other current liabilities ($4,179, $2,415 and $4,311 related to CCJVs)

 363,128  337,300  360,231 

Accounts payable ($62,117, $53,033 and $56,315 related to CCJVs)

 379,008 359,160 358,401 

Contract liabilities ($66,193, $79,777 and $69,688 related to CCJVs)

 174,850 171,321 159,818 

Accrued expenses and other current liabilities ($5,186, $4,410 and $4,179 related to CCJVs)

 485,718  404,497  363,128 
Total current liabilities 889,600 842,056 839,722  1,048,285 943,256 889,600 
Long-term debt 405,770 356,108 366,896  331,222 330,522 405,770 
Long-term lease liabilities 56,071 58,618 60,868  41,816 46,769 56,071 

Deferred income taxes, net

 3,335  3,754  4,680  3,166  3,155  3,335 
Other long-term liabilities 63,118 63,136 58,268  66,167 64,684 63,118 
Commitments and contingencies (Note 18)               

Commitments and contingencies (see Note 16)

          
Equity        

Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding

 0  0  0  0  0  0 
Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding: 45,651,914 shares as of June 30, 2020, 45,503,805 shares as of December 31, 2019 and 46,838,199 shares as of June 30, 2019 458 456 468 

Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding: 45,818,719 shares as of June 30, 2021, 45,668,541 shares as of December 31, 2020 and 45,651,914 shares as of June 30, 2020

 458 457 458 
Additional paid-in capital 553,038 549,307 568,264  556,615 555,407 553,038 
Accumulated other comprehensive loss (5,800) (2,645) (2,187) (2,750) (5,035) (5,800)
Retained earnings 520,025 594,353 579,920  401,061 424,835 520,025 
Total Granite Construction Incorporated shareholders’ equity 1,067,721 1,141,471 1,146,465  955,384 975,664 1,067,721 
Non-controlling interests 23,039 36,945 47,718  32,858 15,946 23,039 
Total equity 1,090,760 1,178,416 1,194,183  988,242 991,610 1,090,760 
Total liabilities and equity $2,508,654 $2,502,088 $2,524,617  $2,478,898 $2,379,996 $2,508,654 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited - in thousands, except per share data)

 

Three Months Ended June 30,

  

Six Months Ended June 30,

 
    

As Restated

    

As Restated

  

Three Months Ended June 30,

 

Six Months Ended June 30,

 
 

2020

 

2019

 

2020

 

2019

  

2021

 

2020

 

2021

 

2020

 

Revenue

  

Transportation

 $535,101  $481,746  $886,002  $783,710  $525,235  $535,101  $876,264  $886,002 

Water

 109,724  112,070  211,381  211,152  113,432  109,724  213,185  211,381 

Specialty

 174,914  174,629  307,953  313,753  200,271  174,914  355,945  307,953 

Materials

 96,032  97,647  146,362  139,290  125,234  96,032  188,691  146,362 

Total revenue

 915,771  866,092  1,551,698  1,447,905  964,172  915,771  1,634,085  1,551,698 

Cost of revenue

  

Transportation

 503,904  481,247  829,436  799,559  465,718  503,904  780,881  829,436 

Water

 97,145  101,568  189,455  192,704  102,869  97,145  194,056  189,455 

Specialty

 149,634  152,874  293,392  278,700  175,902  149,634  314,251  293,392 

Materials

 76,745  83,645  127,273  129,046  102,737  76,745  164,633  127,273 

Total cost of revenue

 827,428  819,334  1,439,556  1,400,009  847,226  827,428  1,453,821  1,439,556 

Gross profit

 88,343  46,758  112,142  47,896  116,946  88,343  180,264  112,142 

Selling, general and administrative expenses

 91,682  70,998  170,063  151,153  74,069  78,023  149,797  151,239 

Acquisition and integration expenses

 0  9,177  0  11,025 
Non-cash impairment charges (See Note 4) 0 0 24,413 0 

Gain on sales of property and equipment

 (1,190) (4,935) (1,813) (6,835)

Operating loss

 (2,149) (28,482) (80,521) (107,447)

Non-cash impairment charges (see Note 3)

 0  0  0  24,413 

Other costs (see Note 3)

 5,953  13,659  81,788  18,824 

Gain on sales of property and equipment, net (see Note 12)

 (31,636) (1,190) (34,190) (1,813)

Operating income (loss)

 68,560  (2,149) (17,131) (80,521)

Other (income) expense

  

Interest income

 (767) (1,728) (2,058) (4,544) (188) (767) (444) (2,058)

Interest expense

 6,549  4,158  11,543  8,172  5,507  6,549  10,888  11,543 

Equity in income of affiliates, net

 (2,016) (2,594) (2,062) (3,884) (6,231) (2,016) (8,039) (2,062)

Other (income) expense, net

 (3,160) (759) 2,059  (2,521) (1,894) (3,160) (3,124) 2,059 

Total other expense (income)

 606  (923) 9,482  (2,777)

Loss before benefit from income taxes

 (2,755) (27,559) (90,003) (104,670)

Benefit from income taxes

 (1,782) (5,913) (16,492) (23,263)

Net loss

 (973) (21,646) (73,511) (81,407)

Total other (income) expense

 (2,806) 606  (719) 9,482 

Income (loss) before provision for (benefit from) income taxes

 71,366  (2,755) (16,412) (90,003)

Provision for (benefit from) income taxes

 15,619  (1,782) (6,836) (16,492)

Net income (loss)

 55,747  (973) (9,576) (73,511)

Amount attributable to non-controlling interests

 4,378  (2,596) 11,546  (5,305) (1,286) 4,378  (2,158) 11,546 

Net income (loss) attributable to Granite Construction Incorporated

 $3,405  $(24,242) $(61,965) $(86,712) $54,461  $3,405  $(11,734) $(61,965)
  

Net income (loss) per share attributable to common shareholders (See Note 16)

        

Net income (loss) per share attributable to common shareholders (see Note 14)

        

Basic

 $0.07  $(0.52) $(1.36) $(1.85) $1.19 $0.07 $(0.26) $(1.36)

Diluted

 $0.07  $(0.52) $(1.36) $(1.85) $1.14 $0.07 $(0.26) $(1.36)

Weighted average shares of common stock

                

Basic

 45,620  46,824  45,570  46,762  45,798  45,620  45,748  45,570 

Diluted

 46,281  46,824  45,570  46,762  47,798  46,281  45,748  45,570 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited - in thousands)

 

Three Months Ended June 30,

  

Six Months Ended June 30,

 Three Months Ended June 30, Six Months Ended June 30, 
    

As Restated

    

As Restated

   

2021

 

2020

 

2021

 

2020

 
 

2020

 

2019

 

2020

 

2019

  
Net loss $(973) $(21,646) $(73,511) $(81,407) 

Other comprehensive loss, net of tax:

         

Net income (loss)

 $55,747  $(973) $(9,576) $(73,511)

Other comprehensive income (loss), net of tax:

 

Net unrealized gain (loss) on derivatives

 $265  $(2,178) $(3,095) $(2,776)  $293  $265  $1,227  $(3,095)

Less: reclassification for net losses (gains) included in interest expense

 390  (117) 440  (290) 

Less: reclassification for net losses included in interest expense

 568  390  1,178  440 

Net change

 $655  $(2,295) $(2,655) $(3,066)  $861  $655  $2,405  $(2,655)

Foreign currency translation adjustments, net

 83  1,179  (500) 1,618   103  83  (122) (500)

Other comprehensive income (loss)

 $738  $(1,116) $(3,155) $(1,448)  $964  $738  $2,283  $(3,155)
Comprehensive loss $(235) $(22,762) $(76,666) $(82,855) 

Non-controlling interests in comprehensive income (loss)

 4,378  (2,596) 11,546  (5,305) 

Comprehensive income (loss)

 $56,711  $(235) $(7,293) $(76,666)

Non-controlling interests in comprehensive income

 (1,286) 4,378  (2,158) 11,546 
Comprehensive income (loss) attributable to Granite Construction Incorporated $4,143 $(25,358) $(65,120) $(88,160)  $55,425  $4,143  $(9,451) $(65,120)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited - in thousands, except share data)

 Outstanding Shares  Common Stock  Additional Paid-In Capital  Accumulated Other Comprehensive (Loss) Income  Retained Earnings  Total Granite Shareholders’ Equity  Non-controlling Interests  Total Equity 

Balances at March 31, 2021

 45,791,712 $458 $554,186 $(3,714) $352,610 $903,540 $27,655 $931,195 

Net income

 —  0  0  0  54,461  54,461  1,286  55,747 

Other comprehensive income

 — 0 0 964 0 964 0 964 

Purchases of common stock (1)

 (4,982) 0  (199) 0  0  (199) 0  (199)

Restricted stock units (“RSUs”) vested

 31,992 0 0 0 0 0 0 0 

Dividends on common stock ($0.13 per share)

 —  0  0  0  (5,956) (5,956) 0  (5,956)

Transactions with non-controlling interests

 — 0 0 0 0 0 3,917 3,917 

Amortized RSUs and other

 (3) 0 2,628 0 (54) 2,574 0 2,574 

Balances at June 30, 2021

 45,818,719 $458 $556,615 $(2,750) $401,061 $955,384 $32,858 $988,242 
 

Outstanding Shares

 

Common Stock

 

Additional Paid-In Capital

 

Accumulated Other Comprehensive (Loss) Income

 

Retained Earnings

 

Total Granite Shareholders’ Equity

 

Non-controlling Interests

 

Total Equity

  

Balances at March 31, 2020

 45,592,292  $457  $551,189  $(6,538) $522,639  $1,067,747  $32,057  $1,099,804  45,592,292 $457 $551,189 $(6,538) $522,639 $1,067,747 $32,057 $1,099,804 

Net income (loss)

 —  0  0  0  3,405  3,405  (4,378) (973) — 0 0 0 3,405 3,405 (4,378) (973)

Other comprehensive income

 —  0  0  738  0  738  0  738  —  0  0  738  0  738  0  738 

Purchases of common stock (1)

 (4,211) 0  (73) 0  0  (73) 0  (73) (4,211) 0  (73) 0  0  (73) 0  (73)
Restricted Stock Units (“RSUs”) vested 29,305 1 (1) 0 0 0 0 0 

RSUs vested

 29,305  1  (1) 0  0  0  0  0 

Dividends on common stock ($0.13 per share)

 —  0  0  0  (5,935) (5,935) 0  (5,935) —  0  0  0  (5,935) (5,935) 0  (5,935)

Transactions with non-controlling interests

 —  0  0  0  0  0  (4,640) (4,640) — 0 0 0 0 0 (4,640) (4,640)
Amortized RSUs and other 34,528 0 1,923 0 (84) 1,839 0 1,839  34,528 0 1,923 0 (84) 1,839 0 1,839 

Balances at June 30, 2020

 45,651,914  $458  $553,038  $(5,800) $520,025  $1,067,721  $23,039  $1,090,760  45,651,914 $458 $553,038 $(5,800) $520,025 $1,067,721 $23,039 $1,090,760 
  

Balances at March 31, 2019 (As Restated)

 46,812,366  $468  $566,497  $(1,081) $610,302  $1,176,186  $48,333  $1,224,519 

Balances at December 31, 2020

 45,668,541 $457 $555,407 $(5,035) $424,835 $975,664 $15,946 $991,610 

Net (loss) income

 —  0  0  0  (24,242) (24,242) 2,596  (21,646) —  0  0  0  (11,734) (11,734) 2,158  (9,576)

Other comprehensive loss

 —  0  0  (1,116) 0  (1,116) 0  (1,116)

Other comprehensive income

 — 0 0 2,283 0 2,283 0 2,283 

Purchases of common stock (1)

 (1,987) 0  (81) 0  0  (81) 0  (81) (62,600) (1) (2,497) 0 0 (2,498) 0 (2,498)

RSUs vested

 17,443  0  0  0  0  0  0  0  213,567 2 (2) 0 0 0 0 0 

Dividends on common stock ($0.13 per share)

 —  0  0  0  (6,089) (6,089) 0  (6,089) — 0 0 0 (11,909) (11,909) 0 (11,909)
Transactions with non-controlling interests — 0 0 0 0 0 (3,210) (3,210) — 0 0 0 0 0 14,754 14,754 

Amortized RSUs and other

 10,377  0  1,848  10  (51) 1,807  (1) 1,806  (789) 0 3,707 2 (131) 3,578 0 3,578 
Balances at June 30, 2019 (As Restated) 46,838,199 $468 $568,264 $(2,187) $579,920 $1,146,465 $47,718 $1,194,183 

Balances at June 30, 2021

 45,818,719 $458 $556,615 $(2,750) $401,061 $955,384 $32,858 $988,242 
  

Balances at December 31, 2019

 45,503,805  $456  $549,307  $(2,645) $594,353  $1,141,471  $36,945  $1,178,416  45,503,805  $456  $549,307  $(2,645) $594,353  $1,141,471  $36,945  $1,178,416 

Net loss

 —  0  0  0  (61,965) (61,965) (11,546) (73,511) — 0 0 0 (61,965) (61,965) (11,546) (73,511)

Other comprehensive loss

 —  0  0  (3,155) —  (3,155) 0  (3,155) — 0 0 (3,155) 0 (3,155) 0 (3,155)

Purchases of common stock (1)

 (53,921) 0  (727) 0  0  (727) 0  (727) (53,921) 0 (727) 0 0 (727) 0 (727)

RSUs vested

 168,360  2  (2) 0  0  0  0  0  168,360 2 (2) 0 0 0 0 0 

Dividends on common stock ($0.13 per share)

 —  0  0  0  (11,862) (11,862) 0  (11,862) — 0 0 0 (11,862) (11,862) 0 (11,862)

Effect of adopting Topic 326 (Note 2)

 —  0  0  0  (366) (366) 0  (366)

Effect of adopting Topic 326

 —  0  0  0  (366) (366) 0  (366)
Transactions with non-controlling interests — 0 0 0 0 0 (2,360) (2,360) — 0 0 0 0 0 (2,360) (2,360)
Amortized RSUs and other 33,670 0 4,460 0 (135) 4,325 0 4,325  33,670 0 4,460 0 (135) 4,325 0 4,325 

Balances at June 30, 2020

 45,651,914  $458  $553,038  $(5,800) $520,025  $1,067,721  $23,039  $1,090,760  45,651,914 $458 $553,038 $(5,800) $520,025 $1,067,721 $23,039 $1,090,760 
 

Balances at December 31, 2018

 46,665,889  $467  $564,559  $(749) $679,453  $1,243,730  $45,624  $1,289,354 

Net (loss) income

 —  0  0  0  (86,712) (86,712) 5,305  (81,407)

Other comprehensive loss

 —  0  0  (1,448) 0  (1,448) 0  (1,448)

Purchases of common stock (1)

 (88,091) (1) (3,947) 0  0  (3,948) 0  (3,948)

RSUs vested

 251,393  2  0  0  0  2  0  2 

Dividends on common stock ($0.13 per share)

 —  0  0  0  (12,175) (12,175) 0  (12,175)

Effect of adopting Topic 842

 —  0  0  0  (539) (539) 0  (539)
Transactions with non-controlling interests — 0 0 0 0 0 (3,209) (3,209)

Amortized RSUs and other

 9,008  0  7,652  10  (107) 7,555  (2) 7,553 
Balances at June 30, 2019 (As Restated) 46,838,199 $468 $568,264 $(2,187) $579,920 $1,146,465 $47,718 $1,194,183 

(1) RepresentsOn June 2, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan, which replaced the Amended and Restated 2012 Equity Incentive Plan. This amount represents shares purchased in connection with employee tax withholding for RSUs vested under our 2012 and 2021 Equity Incentive Plan. 

Plans. 

The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.

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GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - in thousands)

    

As Restated

 

Six Months Ended June 30,

 

2020

 

2019

  

2021

 

2020

 

Operating activities

          
Net loss $(73,511) $(81,407) $(9,576) $(73,511)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

     

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

     

Depreciation, depletion and amortization

 57,269  61,747  52,853  57,269 

Amortization related to the 2.75% Convertible Notes (See Note 14)

 4,255  0 

Gain on sales of property and equipment, net

 (1,813) (6,835)

Amortization related to the 2.75% Convertible Notes (see Note 13)

 4,666  4,255 

Gain on sales of property and equipment, net (see Note 12)

 (34,190) (1,813)

Stock-based compensation

 3,936  7,221  3,642  3,936 

Equity in net loss from unconsolidated joint ventures

 30,506  72,835 

Equity in net (income) loss from unconsolidated joint ventures

 (6,972) 30,506 

Net income from affiliates

 (2,062) (3,884) (8,039) (2,062)
Non-cash impairment charges (See Note 4) 24,413 0 

Non-cash impairment charges (see Note 3)

 0  24,413 

Other non-cash adjustments

 1,832  4,627  1,483 1,832 

Changes in assets and liabilities:

          

Accrual for legal settlement (see Note 16)

 129,000 0 

Insurance receivable for legal settlement (see Note 16)

 (63,000) 0 

Receivables

 (35,486) (79,090) (48,584) (35,486)

Contract assets, net

 83,065  (20,426) (28,111) 83,065 

Inventories

 (16,138) (12,329) (6,062) (16,138)

Contributions to unconsolidated construction joint ventures and affiliates

 (24,223) (45,500)

Contributions to unconsolidated construction joint ventures

 (47,580) (24,223)

Distributions from unconsolidated construction joint ventures and affiliates

 7,146  830  7,029  7,146 

Other assets, net

 (14,603) (32,785) (7,197) (14,603)

Accounts payable

 (44,103) 42,477  26,056  (44,103)

Accrued expenses and other current liabilities, net

 12,000  (996)

Net cash provided by (used in) operating activities

 12,483  (93,515)

Accrued expenses and other liabilities, net

 3,578  12,000 

Net cash (used in) provided by operating activities

 (31,004) 12,483 

Investing activities

          
Purchases of marketable securities (4,996) 0  (5,000) (4,996)

Maturities of marketable securities

 0 10,000 
Proceeds from called marketable securities 20,000 0  0 20,000 

Maturities of marketable securities

 10,000  5,000 

Purchases of property and equipment

 (52,236) (54,354) (46,437) (52,236)

Proceeds from sales of property and equipment

 7,278  7,870 

Cash paid to purchase businesses, net of cash and restricted cash acquired

 0  (6,227)

Proceeds from sales of property and equipment (see Note 12)

 48,517  7,278 

Other investing activities, net

 (1,453) (215) 4,581  (1,453)
Net cash used in investing activities (21,407) (47,926)

Net cash provided by (used in) investing activities

 1,661  (21,407)

Financing activities

          

Proceeds from debt

 50,000  75,499  0 50,000 

Debt principal repayments

 (4,212) (43,842) (4,677) (4,212)

Cash dividends paid

 (11,842) (12,152) (11,890) (11,842)

Repurchases of common stock

 (728) (3,948) (2,497) (728)

Contributions from non-controlling partners

 5,500  0  11,350  5,500 
Distributions to non-controlling partners (7,860) (3,200) (5,836) (7,860)

Other financing activities, net

 392  1,238  (62) 392 

Net cash provided by financing activities

 31,250  13,595 
Net increase (decrease) in cash, cash equivalents and restricted cash 22,326 (127,846)

Cash, cash equivalents and $5,835 and $5,825 restricted cash at beginning of period

 268,108  278,629 
Cash, cash equivalents and $1,512 and $5,825 restricted cash at end of period $290,434 $150,783 

Net cash (used in) provided by financing activities

 (13,612) 31,250 

Net (decrease) increase in cash, cash equivalents and restricted cash

 (42,955) 22,326 

Cash, cash equivalents and $1,512 and $5,835 in restricted cash at beginning of period

 437,648  268,108 

Cash, cash equivalents and $1,512 in restricted cash at end of both periods

 $394,693 $290,434 

Supplementary Information

          

Right of use assets obtained in exchange for lease obligations

 $8,804  $9,835  $7,997  $8,804 

Cash paid for operating lease liabilities

 10,601  8,811  10,956  10,601 

Cash paid during the period for:

          

Interest

 $8,874  $8,381  $8,078  $8,874 

Income taxes

 937  11,463  1,817  937 

Non-cash investing and financing activities:

          

RSUs issued, net of forfeitures

 $4,834  $8,541  $7,554  $4,834 

Accrued cash dividends

 5,935  6,089 

Dividends declared but not paid

 5,956  5,935 

Contributions from non-controlling partners

 9,240 0 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.  Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we,” “us,” “our,” “the Company”the “Company” or “Granite”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), are unaudited and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20192020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to state fairly our financial position at June 30, 20202021 and 20192020 and the results of our operations and cash flows for the periods presented. The December 31, 20192020 condensed consolidated balance sheet data included herein was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.

We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements. Our policy related to derivative instruments was expanded, as follows, to reflect treatment of the interest rate swap de-designation that occurred during the three months ended June 30, 2021, which is further discussed in Note 9:

Derivative Instruments: We recognize derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value using Level 2 inputs. To receive hedge accounting treatment, derivative instruments that are designated as cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. We formally document our hedge relationships at inception, including identification of the hedging instruments and the hedged items, our risk management objectives and strategies for undertaking the hedge transaction, and the initial quantitative assessment of the hedging instrument’s effectiveness in offsetting changes in the fair value of the hedged items. The effective portion of the gain or loss on cash flow hedges is reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified to the consolidated statements of operations when the periodic hedged cash flows are settled. Adjustments to fair value on derivatives that are not part of a designated hedging relationship are reported through the consolidated statements of operations. We do not enter into derivative instruments for speculative or trading purposes.

Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations for the three and six months ended June 30, 20202021 are not necessarily indicative of the results to be expected for the full year.

We prepared the accompanying condensed consolidated financial statements on the same basis as our annual consolidated financial statements, except for the adoption during the three months ended March 31, 2020 of Accounting Standards Update (“ASU”) No.2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement andASU No.2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, neitherof which had a material impact on our condensed consolidated financial statements. In addition, effective January 1, 2020, we adopted ASU No.2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments andASU No.2019-05, Credit Losses (Topic 326): Targeted Transition Relief, the impact of which is described in Note 2.

Cash, Cash Equivalents and Restricted Cash: The table below presents changes in cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows and a reconciliation to the amounts reported in the condensed consolidated balance sheets (in thousands):

Six months ended June 30,

 

2020

  

2019

 

Cash, cash equivalents and restricted cash, beginning of period

 $268,108  $278,629 

End of the period

        

Cash and cash equivalents

  288,922   144,958 

Restricted cash

  1,512   5,825 

Total cash, cash equivalents and restricted cash, end of period

  290,434   150,783 

Net increase (decrease) in cash, cash equivalents and restricted cash

 $22,326  $(127,846)

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Six months ended June 30,

 

2021

  

2020

 

Cash, cash equivalents and restricted cash, beginning of period

 $437,648  $268,108 

End of the period

        

Cash and cash equivalents

  393,181   288,922 

Restricted cash

  1,512   1,512 

Total cash, cash equivalents and restricted cash, end of period

  394,693   290,434 

Net (decrease) increase in cash, cash equivalents and restricted cash

 $(42,955) $22,326 
 

2.  Recently Issued and Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) 2020-06, Debt—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Hedging—Contracts in Entity’sEntity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’sEntity’s Own Equity(“ASU 2020-06”), which simplifies the accounting for convertible instruments resulting in accounting for convertible debt instruments as a single liability measured at its amortized cost. This change will also reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. In addition, the ASU requires the application of the if-converted method for calculating diluted earnings per share and eliminates the treasury stock method.method for convertible debt. The ASU is effective commencing with our quarter endedending March 31, 2022,2022. We currently anticipate adopting this ASU using the modified retrospective transition approach.

Upon issuance of the 2.75% convertible senior notes due 2024 (“2.75% Convertible Notes”), cash received was separated into a $192.6 million debt component and a $27.9 million (net of $9.5 million in taxes) equity component. We have been increasing the debt component for the difference between the principal amount and the $192.6 million (“debt discount”) with earlyan offset to interest expense over the life of the loan using an effective interest rate. Upon adoption permitted. We are currently evaluating the impact of ASU 2020-06, on our condensed consolidated financial statements.interest expense previously recorded and remaining to be recorded from the debt discount will be reversed through retained earnings with an offset to debt, net of tax. We estimate this impact to be between $20 million and $40 million. In addition, using the if-converted method may have a material impact to diluted earnings per share if the Company is in a net income position.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for the effects of the transition away from LIBOR and other reference rates. ThisAlso, in January 2021, the FASB issued ASU was2021-01,Reference Rate Reform (Topic848): Scope, which provided clarification guidance to ASU 2020-04. These ASUs are effective commencing with our quarter ended March 31, 2020 through December 31, 2022, at our option, and we expect to adopt in early 2021.2022. We do not expect the adoption of this ASUthese ASUs to have ana material impact on our condensed consolidated financial statements as ourstatements. Our Credit Agreement (as defined in Note 14 below)currently incorporates the uses of the secured overnight financing rate as an alternative to LIBOR.

In June 2016, the FASB issued ASU No.2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and in May 2019 issued ASU No.2019-05, Credit Losses (Topic 326): Targeted Transition Relief (collectively referred to as “Topic 326”). Topic 326 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. We adopted Topic 326 effective January 1, 2020, recognizing a net cumulative decrease to retained earnings of approximately $0.5 million. Topic 326 was applicable to the following financial assets: short and long-term marketable securities, receivables, contract assets and long-term notes receivables included in other noncurrent assets in our condensed consolidated balance sheets. We elected to estimate the expected credit losses using a loss rate method that was applied to groups of assets categorized based on similar risk characteristics. The loss rate was based on historical losses and other information available to management. To account for the measurement of expected credit losses an allowance for credit losses was required for receivables and contract assets and was not required for any other applicable financial asset. As of June 30,2020, $1.8 million was deducted primarily from receivables to present the net amount expected to be collected. 

In connection with the adoption of Topic 326, we implemented the following accounting policy as of January 1, 2020:

Allowance for Credit Losses: Financial assets, which potentially subject us to credit losses, consist primarily of short and long-term marketable securities, receivables, contract assets and long-term notes receivables included in other noncurrent assets in our consolidated balance sheets. We measure expected credit losses of financial assets based on historical loss and other information available to management using a loss rate method applied to asset groups with categorically similar risk characteristics. These expected credit losses are recorded to an allowance for credit losses valuation account that is deducted from receivables and contract assets to present the net amount expected to be collected on the financial asset on the consolidated balance sheet.

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

3.  RestatementImpairment Charges and Other Costs

Restatement Background

As disclosed in our 2019 Annual Report on Form 10-K, in February 2020, the Audit/Compliance Committee of the Company’s Board of Directors, assisted by independent counsel, initiated an investigation of prior-period reporting for the Heavy Civil operating group, and the extent to which these matters affect the effectiveness of the Company’s internal control over financial reporting (the “Investigation”). The Investigation is now complete. We have restated our consolidated financial statements as of December 31, 2018, and for the years ended December 31, 2018 and 2017 and our unaudited quarterly financial information for the firstthree quarters in the year ended December 31, 2019 and for each of the quarters in the year ended December 31, 2018 in our Annual Report on Form 10-K for the year ended December 31, 2019 to correct misstatements associated with project forecasts in the Heavy Civil operating group (the “Investigation Adjustments”) discovered in connection with the independent Investigation. In addition to the Investigation Adjustments, we corrected additional identified out-of-period and uncorrected misstatements that were not material, individually or in the aggregate, to our consolidated financial statements (the “Other Adjustments”). We have reflected the impact of the restatement on our unaudited condensed consolidated financial information as of and for the three and six months ended June 30, 2019 herein.

Description of Restatement TablesGoodwill

We have presented below a reconciliation from the previously reported to the restated valuesperform our goodwill impairment tests annually as of and for the three and six months ended June 30, 2019. The previously reported values were derived from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 filed on August 6, 2019November 1 and are labeled as “As Previously Reported” in the following tables. The account balances labeled as “Investigation Adjustments” represent effectsmore frequently when events and circumstances occur that indicate a possible impairment of adjustments resulting from the Investigation. The account balances labeled as “Other Adjustments” represent the effects of other adjustments, which related to revisions in estimates in projects primarily impacting revenue and cost of revenue in the Transportation segment as a result of out-of-period or uncorrected misstatements in previously filed financial statements thatgoodwill. There werenot material, individually or in the aggregate, to those previously filed financial statements, balance sheet reclassifications and other immaterial adjustments.

The impacts to the condensed consolidated statements of shareholders’ equity and comprehensive (loss) income as a result of the restatement were due to the changes in net income for the three and six months ended June 30, 2019. In addition, there was no impact to net cash used in investing and financing activities forevents or circumstances during the six months ended June 30, 20192021 asor during the three months ended June 30, 2020 that would indicate a result of the restatement.

The effects of the prior-period misstatements on our consolidated financial statements are as follows (in thousands, except per share data):

Consolidated Balance Sheet

June 30, 2019

 

As Previously Reported

  

Investigation Adjustments

  

Other Adjustments

  

As Restated

 

ASSETS

                

Current assets

                

Cash and cash equivalents

 $144,958  $0  $0  $144,958 

Short-term marketable securities

  41,037   0   0   41,037 

Receivables, net

  551,958   10,567   2,018   564,543 

Contract assets

  257,650   (30,286)  (2,975)  224,389 

Inventories

  102,163   0   (477)  101,686 

Equity in construction joint ventures

  241,786   (18,401)  (3,138)  220,247 

Other current assets

  63,056   16,919   585   80,560 

Total current assets

  1,402,608   (21,201)  (3,987)  1,377,420 

Property and equipment, net

  557,118   0   1,260   558,378 

Long-term marketable securities

  20,000   0   0   20,000 

Investments in affiliates

  82,109   0   0   82,109 

Goodwill

  264,107   0   0   264,107 

Right of use assets

  73,439   0   0   73,439 

Deferred income taxes, net

  36,055   (8,580)  774   28,249 

Other noncurrent assets

  122,705   0   (1,790)  120,915 

Total assets

 $2,558,141  $(29,781) $(3,743) $2,524,617 
                 

LIABILITIES AND EQUITY

                

Current liabilities

                

Current maturities of long-term debt

 $48,397  $0  $0  $48,397 

Accounts payable

  303,128   0   (477)  302,651 

Contract liabilities

  119,289   9,154   0   128,443 

Accrued expenses and other current liabilities

  339,047   21,184   0   360,231 

Total current liabilities

  809,861   30,338   (477)  839,722 

Long-term debt

  366,896   0   0   366,896 

Long-term lease liabilities

  60,868   0   0   60,868 

Deferred income taxes, net

  4,680   0   0   4,680 

Other long-term liabilities

  58,268   0   0   58,268 

Commitments and contingencies

                    

Equity

                

Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding

  0   0   0   0 

Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding: 46,838,199 shares as of June 30, 2019

  468   0   0   468 

Additional paid-in capital

  568,264   0   0   568,264 

Accumulated other comprehensive (loss) income

  (3,448)  0   1,261   (2,187)

Retained earnings

  642,124   (58,719)  (3,485)  579,920 

Total Granite Construction Incorporated shareholders’ equity

  1,207,408   (58,719)  (2,224)  1,146,465 

Non-controlling interests

  50,160   (1,400)  (1,042)  47,718 

Total equity

  1,257,568   (60,119)  (3,266)  1,194,183 

Total liabilities and equity

 $2,558,141  $(29,781) $(3,743) $2,524,617 

Consolidated Statement of Operations

  

Three Months Ended June 30, 2019

  

Six Months Ended June 30, 2019

 
  

As Previously Reported

  

Investigation Adjustments

  

Other Adjustments

  

As Restated

  

As Reported

  

Investigation Adjustments

  

Other Adjustments

  

As Restated

 

Revenue

                                

Transportation

 $403,978  $76,255  $1,513  $481,746  $742,188  $48,233  $(6,711) $783,710 

Water

  112,831   (728)  (33)  112,070   212,086   (898)  (36)  211,152 

Specialty

  175,084   0   (455)  174,629   315,777   0   (2,024)  313,753 

Materials

  97,647   0   0   97,647   139,290   0   0   139,290 

Total revenue

  789,540   75,527   1,025   866,092   1,409,341   47,335   (8,771)  1,447,905 

Cost of revenue

                                

Transportation

  503,857   (22,610)  0   481,247   820,817   (16,402)  (4,856)  799,559 

Water

  101,568   0   0   101,568   192,704   0   0   192,704 

Specialty

  152,874   0   0   152,874   278,700   0   0   278,700 

Materials

  83,645   0   0   83,645   129,046   0   0   129,046 

Total cost of revenue

  841,944   (22,610)  0   819,334   1,421,267   (16,402)  (4,856)  1,400,009 

Gross (loss) profit

  (52,404)  98,137   1,025   46,758   (11,926)  63,737   (3,915)  47,896 

Selling, general and administrative expenses

  69,998   0   1,000   70,998   151,153   0   0   151,153 

Acquisition and integration expenses

  9,177   0   0   9,177   12,500   0   (1,475)  11,025 

Gain on sales of property and equipment

  (4,935)  0   0   (4,935)  (6,835)  0   0   (6,835)

Operating loss

  (126,644)  98,137   25   (28,482)  (168,744)  63,737   (2,440)  (107,447)

Other (income) expense

                                

Interest income

  (1,728)  0   0   (1,728)  (4,544)  0   0   (4,544)

Interest expense

  4,158   0   0   4,158   8,172   0   0   8,172 

Equity in income of affiliates, net

  (2,594)  0   0   (2,594)  (3,884)  0   0   (3,884)

Other income, net

  (759)  0   0   (759)  (2,521)  0   0   (2,521)

Total other income

  (923)  0   0   (923)  (2,777)  0   0   (2,777)

Loss before benefit from income taxes

  (125,721)  98,137   25   (27,559)  (165,967)  63,737   (2,440)  (104,670)

Benefit from income taxes

  (31,760)  25,874   (27)  (5,913)  (40,925)  18,247   (585)  (23,263)

Net loss

  (93,961)  72,263   52   (21,646)  (125,042)  45,490   (1,855)  (81,407)

Amount attributable to non-controlling interests

  (3,875)  1,341   (62)  (2,596)  (7,368)  1,400   663   (5,305)

Net loss attributable to Granite Construction Incorporated

 $(97,836) $73,604  $(10) $(24,242) $(132,410) $46,890  $(1,192) $(86,712)
                                 

Net loss per share attributable to common shareholders

                                

Basic

 $(2.09) $1.57  $(0.00) $(0.52) $(2.83) $1.00  $(0.03) $(1.85)

Diluted

 $(2.09) $1.57  $(0.00) $(0.52) $(2.83) $1.00  $(0.03) $(1.85)

Weighted average shares of common stock

                                

Basic

  46,824   46,824   46,824   46,824   46,762   46,762   46,762   46,762 

Diluted

  46,824   46,824   46,824   46,824   46,762   46,762   46,762   46,762 

Consolidated Statement of Cash Flows

Six Months Ended June 30, 2019

 

As Previously Reported

  

Investigation Adjustments

  

Other Adjustments

  

As Restated

 

Operating activities

                

Net loss

 $(125,042) $45,490  $(1,855) $(81,407)

Adjustments to reconcile net loss to net cash used in operating activities:

                

Depreciation, depletion and amortization

  61,747   0   0   61,747 

Gain on sales of property and equipment, net

  (6,835)  0   0   (6,835)

Deferred income taxes

  (35,192)  35,189   0   (3)

Stock-based compensation

  7,221   0   0   7,221 

Equity in net loss from unconsolidated joint ventures

  105,834   (60,073)  27,074   72,835 

Net income from affiliates

  (3,884)  0   0   (3,884)

Other non-cash adjustments

  4,630   0   0   4,630 

Changes in assets and liabilities:

                

Receivables

  (78,081)  0   (1,009)  (79,090)

Contract assets, net

  (23,775)  (3,687)  7,036   (20,426)

Inventories

  (12,905)  0   576   (12,329)

Contributions to unconsolidated construction joint ventures

  (45,500)  0   0   (45,500)

Distributions from unconsolidated construction joint ventures

  830   0   0   830 

Other assets, net

  (15,361)  (16,919)  (505)  (32,785)

Accounts payable

  48,230   0   (5,753)  42,477 

Accrued expenses and other current liabilities, net

  24,568   0   (25,564)  (996)

Net cash used in operating activities

 $(93,515) $0  $0  $(93,515)

4.  Impairment Charges

Goodwillpossible goodwill impairment. 

We performed an interim goodwill impairment test on the March 31, 2020 balances of our Water and Mineral Services Group Materials and Water and Mineral Services Group Specialty reporting units due to an adverse change in the business climate for these reporting units, including a modified relationship with a business partner, increased competition and market consolidation during the three months ended March 31, 2020, exasperatedexacerbated by economic disruption and market conditions associated with the COVID-19 pandemic. These factors led to reductions in the revenue and margin growth rates used in our quantitative goodwill tests. The goodwill impairment test resulted in a $14.8 million impairment charge during the three months ended March 31, 2020 associated with our Water and Mineral Services Group Materials reporting unit and no impairment charge associated with our Water and Minerals Services Group Specialty reporting unit as its estimated fair value exceeded its net book value (i.e., cushion)headroom) by over 15%. Interim goodwill impairment tests were not performed on our remaining reporting units as there was no indication of a possible goodwill impairment nor were interim goodwill impairment tests performed on the June 30, 2020 balances as there were no indicators of possible goodwill impairment.

Consistent with our annual impairment test, we calculated the estimated fair values of the Water and Mineral Services Group Materials and Water and Mineral Services Group Specialty reporting units using the discounted cash flows and market multiple methods. Judgments inherent in these methods included the determination of appropriate discount rates, the amount and timing of expected future cash flows, revenue and margin growth rates, and appropriate benchmark companies. The cash flows used in our discounted cash flow model were based on five-year financial forecasts developed internally by management adjusted for market participant-based assumptions. Our discount rate assumptions were based on an assessment of the equity cost of capital and appropriate capital structure for our reporting units.

Future developments that we are unable to anticipate may require us to further revise the estimated future cash flows, which could adversely affect the fair value of our reporting units in future periods and result in additional impairment charges. The assumptions used in the goodwill impairment tests are classified as Level 3 inputs.

Subsequent Goodwill Impairment ChargesInvestments in Affiliates

We performed aInvestments in affiliates are evaluated for impairment using the other-than-temporary impairment model, which requires an impairment charge to be recognized if our investments’ carrying amounts exceed their fair value, and the decline in fair value is deemed to be other than temporary. There were secondno interim goodwillevents or changes in circumstances which would cause us to assess our investments for impairment test onduring the September 30,six months ended 2020June 30, 2021 balances of our Midwest Group Specialty, Water and Mineral Services Group Water and Water and Mineral Services Group Materials reporting units due to the continued impact from an adverse change in the business climate, including reduced market share due to loss of strategic personnelor during the three months ended SeptemberJune 30, 2020.These factors led to reductions in the revenue and margin growth rates, and delays in the timing of future cash flows used in our quantitative goodwill tests. The goodwill impairment test resulted in a non-cash impairment charge of an additional $117.9 million and $14.4 million associated with our Water and Mineral Services Group Water and Water and Mineral Services Group Materials reporting units, respectively, during

During the three months ended September 30, 2020. The goodwill impairment tests for the Midwest Group Specialty reporting unit indicated that their estimated fair values exceeded their net book value (i.e., headroom) by nearly 15%; therefore, no impairment charge was recorded. Interim goodwill impairment tests were not performed on our remaining reporting units as there was no indication of a possible goodwill impairment. We completed our 2020 annual goodwill impairment tests during the quarter ended DecemberMarch 31, 2020 and no additional impairment charge was recorded.

Investment in Affiliates

During the six months ended June 30, 2020, operating costs increased in certain of our foreign entity investments in affiliates which resulted in price increases and therefore a decrease in demand. The effect of this change in business climate on certain investments’ expected future operating cash flows resulted in other than temporary declinedeclines in fair value below the carrying value.values. Therefore, we recorded a non-cash impairment charge of $9.6 million during the six months ended June 30, 2020.2020 The remaining carrying valueusing assumptions classified as Level 3 inputs.

Other Costs

Other costs included on the condensed consolidated statements of operations primarily consisted of $66.0 million in net settlement charges for the investments of $74.5six months ended June 30, 2021 as further described in Note 16. Other costs also included $6.2 million atand $13.4 million for the three and six months ended June 30, 2021, respectively, and $13.5 million and $18.7 million for the three and six months ended June 30, 2020, representsrespectively, of legal, accounting and investigation fees related to the fair value recorded on a nonrecurring basisindependent investigation undertaken by the Audit/Compliance Committee. The remaining Other costs were related to restructuring in the Heavy Civil operating group and is a Level 3 fair value measurement.integration expenses related to the Layne Christensen Company (“Layne”) acquisition.

 

5.4.  Revisions in Estimates

Our profit recognition related to construction contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate. When we experience significant changes in our estimates, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally we use the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to revise our estimates in the future. Other than those identified in the 2019 Annual Report on Form 10-K, we did not identify any material amounts that should have been recorded in a prior period for the three and six months ended June 30, 2019. In our review of these changes for the three and six months ended June 30, 2021 and 2020, we did not identify any material amounts that should have been recorded in a prior period.

In the normal course of business, we have revisions in estimates, including estimated costs some of which are associated with unresolved affirmative claims and back charges. The estimated or actual recovery related to these estimated costs may be recorded in future periods or may be at values below the associated cost, which can cause fluctuations in the gross profit impact from revisions in estimates.

There was one project with an increase from revisions in estimates which individually had an impact of $5.0 million on gross profit in our Transportation segment during the three months ended June 30, 2019 due to estimated cost recovery from affirmative claims. There were no increases from revisions in estimates, which individually had an impact of $5.0 million or more on gross profit, for the remaining periods presented.

The projects with decreases from revisions in estimates, which individually had an impact of $5.0 million or more on gross profit, are summarized as follows (dollars in millions except per share data):

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 
    

As Restated

    

As Restated

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
 

2020

 

2019

 

2020

 

2019

  

2021

 

2020

 

2021

 

2020

 

Number of projects with downward estimate changes

 3  4  5  5  0  3  2  5 

Range of reduction in gross profit from each project, net

 $5.8 - 16.1  $6.4 - 37.0  $7.4 - 19.8  $7.7 - 37.0 

Amount/range of reduction in gross profit from each project, net

 $0  $5.8 - 16.1  $5.3 - 6.1  $7.4 - 19.8 
Decrease to project profitability $30.9 $58.1 $69.8 $93.5  0 30.9 11.4 69.8 
Increase to net loss $22.9 $44.6 $51.8 $71.8  0 22.9 8.9 51.8 
Increase to net loss per diluted share $0.50 $0.95 $1.14 $1.53  0 0.50 0.20 1.14 

The decreases during the six months ended June 30, 2021 were in our Transportation segment and were due to additional costs from acceleration of work coupled with lower productivity than originally anticipated and unfavorable weather. Other than one project in our Specialty segment during the three and six months ended June 30, 2020,, all decreases were in our Transportation segment and were due to additional costs and lower productivity than originally anticipated as well as weather related costs. The decreases during the three and six months ended June 30, 2019 were in our Transportation segment and were due to increased project completion costs, schedule delays, execution of a significant amount of disputed work as well as an unfavorable court ruling on a designer back charge claim partially offset by an increase in estimated recovery from customer affirmative claims.

8
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

6.5.  Disaggregation of Revenue

The following tables present our disaggregated revenue (in thousands): 

Three Months Ended June 30,

2020

 

Transportation

 

Water

 

Specialty

 

Materials

 

Total

 

2021

 

Transportation

 

Water

 

Specialty

 

Materials

 

Total

 

California

 $159,022  8,215  $50,965  $52,229  $270,431  $176,307  $7,982  $51,435  $70,490  $306,214 

Federal

 1,768  587  23,504  0  25,859  3,297  27  18,847  0  22,171 

Heavy Civil

 187,103  11,173  11,577  0  209,853  155,868  6,056  26,213  0  188,137 

Midwest

 34,942  152  38,648  0  73,742  32,223  0  25,436  0  57,659 

Northwest

 152,266  2,243  36,787  40,685  231,981  157,540  644  51,550  50,756  260,490 

Water and Mineral Services

 0  87,354  13,433  3,118  103,905  0  98,723  26,790  3,988  129,501 

Total

 $535,101  $109,724  $174,914  $96,032  $915,771  $525,235  $113,432  $200,271  $125,234  $964,172 

 

2019 (As Restated)

 

Transportation

  

Water

  

Specialty

  

Materials

  

Total

 

California

 $138,411  $2,634  $42,982  $50,962  $234,989 

Federal

  50   371   18,523   0   18,944 

Heavy Civil

  153,760   2,620   0   0   156,380 

Midwest

  28,135   0   39,126   0   67,261 

Northwest

  161,390   1,349   48,675   40,846   252,260 

Water and Mineral Services

  0   105,096   25,323   5,839   136,258 

Total

 $481,746  $112,070  $174,629  $97,647  $866,092 

2020

 

Transportation

  

Water

  

Specialty

  

Materials

  

Total

 

California

 $159,022  $8,215  $50,965  $52,229  $270,431 

Federal

  1,768   587   23,504   0   25,859 

Heavy Civil

  187,103   11,173   11,577   0   209,853 

Midwest

  34,942   152   38,648   0   73,742 

Northwest

  152,266   2,243   36,787   40,685   231,981 

Water and Mineral Services

  0   87,354   13,433   3,118   103,905 

Total

 $535,101  $109,724  $174,914  $96,032  $915,771 

Six Months Ended June 30,

2020

 

Transportation

 

Water

 

Specialty

 

Materials

 

Total

 

2021

 

Transportation

 

Water

 

Specialty

 

Materials

 

Total

 

California

 $253,954  $13,727  $95,453  $85,496  $448,630  $287,677  $18,981  $97,133  $112,446  $516,237 

Federal

 2,166  968  49,995  0  53,129  5,151  157  40,933  0  46,241 

Heavy Civil

 354,529  18,275  15,071  0  387,875  307,611  13,398  48,227  0  369,236 

Midwest

 59,185  152  50,151  0  109,488  49,178  0  45,768  0  94,946 

Northwest

 216,168  3,900  68,400  55,138  343,606  226,647  2,078  77,457  68,161  374,343 

Water and Mineral Services

 0  174,359  28,883  5,728  208,970  0  178,571  46,427  8,084  233,082 

Total

 $886,002  $211,381  $307,953  $146,362  $1,551,698  $876,264  $213,185  $355,945  $188,691  $1,634,085 

 

2019 (As Restated)

 

Transportation

  

Water

  

Specialty

  

Materials

  

Total

 

California

 $207,924  $4,000  $75,137  $74,027  $361,088 

Federal

  77   879   33,725   0   34,681 

Heavy Civil

  313,502   6,981   0   0   320,483 

Midwest

  46,196   84   73,447   0   119,727 

Northwest

  216,011   2,580   80,867   55,378   354,836 

Water and Mineral Services

  0   196,628   50,577   9,885   257,090 

Total

 $783,710  $211,152  $313,753  $139,290  $1,447,905 

2020

 

Transportation

  

Water

  

Specialty

  

Materials

  

Total

 

California

 $253,954  $13,727  $95,453  $85,496  $448,630 

Federal

  2,166   968   49,995   0   53,129 

Heavy Civil

  354,529   18,275   15,071   0   387,875 

Midwest

  59,185   152   50,151   0   109,488 

Northwest

  216,168   3,900   68,400   55,138   343,606 

Water and Mineral Services

  0   174,359   28,883   5,728   208,970 

Total

 $886,002  $211,381  $307,953  $146,362  $1,551,698 

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

7.6.  Unearned Revenue

The following tables present our unearned revenue as of the respective periods (in thousands):

June 30, 2021

 

Transportation

  

Water

  

Specialty

  

Total

 

California

 $769,260  $44,066  $150,178  $963,504 

Federal

  7,303   73   102,972   110,348 

Heavy Civil

  622,491   161,632   172,818   956,941 

Midwest

  107,630   0   295,447   403,077 

Northwest

  568,814   3,891   292,395   865,100 

Water and Mineral Services

  0   153,051   0   153,051 

Total

 $2,075,498  $362,713  $1,013,810  $3,452,021 

March 31, 2021

 

Transportation

  

Water

  

Specialty

  

Total

 

California

 $627,002  $27,754  $154,694  $809,450 

Federal

  10,028   100   122,256   132,384��

Heavy Civil

  774,123   6,791   193,933   974,847 

Midwest

  135,655   0   350,063   485,718 

Northwest

  518,040   1,423   249,690   769,153 

Water and Mineral Services

  0   154,185   0   154,185 

Total

 $2,064,848  $190,253  $1,070,636  $3,325,737 

June 30, 2020

 

Transportation

  

Water

  

Specialty

  

Total

 

California

 $636,385  $61,151  $122,989  $820,525 

Federal

  16,464   861   123,169   140,494 

Heavy Civil

  1,188,587   34,961   233,069   1,456,617 

Midwest

  214,016   0   112,298   326,314 

Northwest

  571,068   330   89,730   661,128 

Water and Mineral Services

  0   130,561   0   130,561 

Total

 $2,626,520  $227,864  $681,255  $3,535,639 

 

March 31, 2020

            

California

 $527,971  $52,136  $94,006  $674,113 

Federal

  18,152   957   131,569   150,678 

Heavy Civil

  1,321,443   41,511   240,060   1,603,014 

Midwest

  208,872   150   140,461   349,483 

Northwest

  614,653   2,868   61,680   679,201 

Water and Mineral Services

  0   143,539   0   143,539 

Total

 $2,691,091  $241,161  $667,776  $3,600,028 

June 30, 2019 (As Restated)

                

California

 $590,641  $14,382  $119,152  $724,175 

Federal

  80   1,350   146,516   147,946 

Heavy Civil

  1,805,917   14,244   0   1,820,161 

Midwest

  204,749   110   161,353   366,212 

Northwest

  374,148   710   93,411   468,269 

Water and Mineral Services

  0   224,720   0   224,720 

Total

 $2,975,535  $255,516  $520,432  $3,751,483 

Approximately $2.5 billion of the June 30, 2021 unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

8.7.  Contract Assets and Liabilities

DuringAs work is performed, revenue is recognized and the corresponding contract liabilities are reduced. We recognized revenue of $29.2 million and $175.6 million during the three and six months ended June 30, 2021, respectively, and $18.2 million and $114.0 million during the three and six months ended June 30, 2020, respectively, that was included in the contract liability balances at December 31, 2020 and 2019, respectively.

As a result of changes in contract transaction price from items such as executed or estimated change orders and resolution of contract modifications and claims, we recognized revenue of $44.3 million and $116.4 million during the three and six months ended June 30, 2021, respectively, and $49.9 million and $93.8 million during the three and six months ended June 30, 2020, we recognized revenue of $18.2 million and $114.0 million, respectively, that was included in the contract liability balances at December 31, 2019. During the three and six months ended June 30, 2019, we recognized revenue of $17.5 million and $114.6 million, respectively, that was included in the contract liability balance at December 31, 2018.

As a result of changes in contract transaction price related to performance obligations that were satisfied or partially satisfied prior to the end of the periods, we recognized revenue of $70.8 million and $114.7 million duringperiods. The prior period amounts have been adjusted to correct an immaterial disclosure error in the three and six months endedpreviously issued June 30, 2020, respectively, and $58.6 million and $97.5 million during the three and six months ended June 30, 2019, respectively. The changes in contract transaction price were from items such as executed or estimated change orders and unresolved contract modifications and claims.condensed consolidated financial statements.

As of June 30, 20202021, December 31, 20192020 and June 30, 20192020, the aggregate claim recovery estimates included in contract asset and liability balances were $60.0$47.7 million, $71.1$37.7 million and $61.0$60.0 million, respectively.

The components of the contract asset balances as of the respective dates were as follows (in thousands):follows:

     As Restated 
 

June 30, 2020

 

December 31, 2019

 

June 30, 2019

 

(in thousands)

 June 30, 2021 December 31, 2020 June 30, 2020 

Costs in excess of billings and estimated earnings

 $73,745  $100,761  $128,239  $65,247  $39,300  $73,745 

Contract retention

 118,174  110,680  96,150  129,236 125,639 118,174 

Total contract assets

 $191,919  $211,441  $224,389  $194,483 $164,939 $191,919 

As of June 30, 20202021, December 31, 20192020 and June 30, 20192020, no contract retention receivable individually exceeded 10%15% of total net receivablescontract assets at any of the presented dates. The majority of the contract retention balance is expected to be collected within one year.

The components of the contract liability balances as of the respective dates were as follows (in thousands):follows:

     As Restated 
 

June 30, 2020

 

December 31, 2019

 

June 30, 2019

 

(in thousands)

 June 30, 2021 December 31, 2020 June 30, 2020 

Billings in excess of costs and estimated earnings, net of retention

 $148,050  $86,736  $119,881  $147,072  $143,623  $148,050 

Provisions for losses

 11,768  9,001  8,562  27,778  27,698  11,768 

Total contract liabilities

 $159,818  $95,737  $128,443  $174,850  $171,321  $159,818 
 

9.8.  Receivables, net 

Receivables include billed and unbilled amounts for services provided to clients for which we have an unconditional right to payment as of the end of the applicable period and do not bear interest.The following table presents major categories of receivables (in thousands):receivables:

     

As Restated

 
 June 30, 2020 December 31, 2019 June 30, 2019 

(in thousands)

 June 30, 2021 December 31, 2020 June 30, 2020 

Contracts completed and in progress:

  

Billed

 $311,550  $299,633  $313,185  $259,319  $293,376  $311,550 

Unbilled

 163,815  149,696  163,950  217,025  148,159  163,815 

Total contracts completed and in progress

 475,365  449,329  477,135  476,344  441,535  475,365 

Material sales

 58,514  42,936  61,204  66,929  49,991  58,514 

Other

 65,462  55,526  26,845  105,930  52,736  65,462 

Total gross receivables

 599,341  547,791  565,184  649,203  544,262  599,341 

Less: allowance for credit losses

 2,419  374  641  2,263  3,450  2,419 

Total net receivables

 $596,922  $547,417  $564,543  $646,940  $540,812  $596,922 

Included in other receivables at June 30, 20202021, December 31, 20192020 and June 30, 20192020, were items such as estimated recovery from back charge claims, notes receivable, insurance receivable, fuel tax refunds and income tax refunds. Other than the $63.0 million insurance receivable related to the settlement discussed in Note No16, suchno other receivables individually exceeded 10% of total net receivables at any of these dates.

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

10.9.  Fair Value Measurement

The following tables summarize significant assets and liabilities measured at fair value in the condensed consolidated balance sheets on a recurring basis for each of the fair value levels (in thousands):

 

Fair Value Measurement at Reporting Date Using

  

Fair Value Measurement at Reporting Date Using

 

June 30, 2020

 

Level 1

 

Level 2

 

Level 3

 

Total

 

June 30, 2021

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Cash equivalents

                        

Money market funds

 $104,704  $0  $0  $104,704  $23,489  $0  $0  $23,489 
Other current assets                     
Commodity swap 0 598 0 598  0  1,550  0  1,550 

Other noncurrent assets

                        

Restricted cash

 1,512  0  0  1,512  1,512  0  0  1,512 

Total assets

 $106,216  $598  $0  $106,814  $25,001  $1,550  $0  $26,551 

Accrued and other current liabilities

                        

Interest rate swap

 $0  $9,058  $0  $9,058  $0  $5,770  $0  $5,770 

Total liabilities

 $0  $9,058  $0  $9,058  $0  $5,770  $0  $5,770 

 

December 31, 2019

        ��   

December 31, 2020

            

Cash equivalents

                        

Money market funds

 $94,696  $0  $0  $94,696  $70,483  $0  $0  $70,483 

Other noncurrent assets

                        

Restricted cash

 5,835  0  0  5,835  1,512  0  0  1,512 

Total assets

 $100,531  $0  $0  $100,531  $71,995  $0  $0  $71,995 

Accrued and other current liabilities

                        

Interest rate swap

 $0  $4,603  $0  $4,603  $0  $7,606  $0  $7,606 

Total liabilities

 $0  $4,603  $0  $4,603  $0  $7,606  $0  $7,606 

 

June 30, 2019

            

June 30, 2020

            

Cash equivalents

                        

Money market funds

 $17,790  $0  $0  $17,790  $104,704  $0  $0  $104,704 

Other current assets

         

Commodity swap

 0 598 0 598 

Other noncurrent assets

                        

Restricted cash

 5,825  0  0  5,825  1,512  0  0  1,512 

Total assets

 $23,615  $0  $0  $23,615  $106,216  $598  $0  $106,814 

Accrued and other current liabilities

                        

Interest rate swap

 $0  $4,985  $0  $4,985  $0  $9,058  $0  $9,058 

Total liabilities

 $0  $4,985  $0  $4,985  $0  $9,058  $0  $9,058 

 

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Interest Rate Swaps

In connection with the Third Amended and Restated Credit Agreement (as discussed further in Note 14) we entered into two interest rate swaps designated as cash flow hedges with an effective date of May 2018.2018 The twothat were designated as cash flow hedges through the three months ended March 31, 2021. These interest rate swaps had a combined initial notional amount of $150.0 million and mature in May 2023. The interest rate swaps are designed to convert the interest rate on the term loan from a variable interest rate of LIBOR plus an applicable margin to a fixed rate of 2.76% plus the same applicable margin. The interest rate swap is measured at fair value on the condensed consolidated balance sheets using the income approach, which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations primarily utilize indirectly observable inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals. During the three months ended June 30, 2021, we determined that the interest rate swaps were no longer highly effective in offsetting changes to expected future cash flows on hedged transactions, and the interest rate swaps were de-designated as cash flow hedges. As a result of this de-designation, we recorded a $0.8 million reduction to interest expense in the condensed consolidated statements of operations during the three months ended June 30, 2021. The unrealized loss on the interest rate swaps of $5.4 million in accumulated other comprehensive loss will continue to be amortized to interest expense through the maturity date of May 2023 and was $0.7 million and $1.5 million during the three and six months ended June 30, 2021.

Commodity Swaps

As of June 30, 2021, we held crude oil swaps with total outstanding gross notional amounts of $4.9 million that will all mature by October 2021. For the three and six months ended June 30, 2021, total commodity swap gain was $1.2 million and $1.3 million, respectively, and was included in cost of revenue on the condensed consolidated statements of operations.

Other Assets and Liabilities

The carrying values and estimated fair values of financial instruments that are not required to be recorded at fair value in the condensed consolidated balance sheets were as follows:

  

June 30, 2020

 

December 31, 2019

 

June 30, 2019

   

June 30, 2021

 

December 31, 2020

 

June 30, 2020

 

(in thousands)

Fair Value Hierarchy

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

 

Fair Value Hierarchy

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

 

Assets:

                              

Held-to-maturity marketable securities (1)

Level 1

 $5,896  $5,896  $32,799  $32,792  $61,037  $60,887 

Level 1

 $10,850  $10,801  $5,200  $5,200  $5,896  $5,896 

Liabilities (including current maturities):

                              

2.75% Convertible Notes (2),(3)

Level 2

 $196,946  $184,554  $193,696  $249,895  $0  $0 

Level 2

 $203,771  $333,500  $200,303  $248,400  $196,946  $184,554 

Credit Agreement - term loan (2)

Level 3

 135,000  137,116  138,750  139,042  142,500  143,109 

Level 3

 127,500  128,639  131,250  133,030  135,000  137,116 

Credit Agreement - revolving credit facility (2)

Level 3

 75,000  76,291  25,000  25,043  220,000  220,597 

Level 3

 0  0  0  0  75,000  76,291 

2019 Notes (2)

Level 3

 0  0  0  0  40,000  40,571 

(1) All marketable securities were classified as held-to-maturity and consisted of U.S. Government and agency obligations as of June 30,2020 and December 31, 2019, and included corporate bonds as of June 30,2019.maturing in one to five years.

(2) The fair valuesvalue of the 20192.75% Convertible Notes is based on the median price of the notes in an active market. The fair value of the Credit Agreement term loan and revolving credit facility areis based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. The fair value of the 2.75% Convertible Notes is based on the median price of the notes in an active market as of June 30,2020 and December 31, 2019. See Note 1413 for definitions of, and more information about the 2019 Notes, Credit Agreement and 2.75% Convertible Notes.

(3) Excluded from the carrying value is $33.1 and $36.3 million debt discount of $26.2 million, $29.7 million and $33.1 million as of June 30, 202130,2020 and, December 31, 2019,2020 and June 30, 2020, respectively, related to the 2.75% Convertible Notes (See note(see Note 1413).

As disclosed in Note

During the 4,three we recorded fair value adjustments related to nonfinancial assets measured at fair value on a nonrecurring basis during theand six months ended June 30, 2020. 2021During and the three months ended June 30, 2020, we did not record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis. DuringAs disclosed in Note 3, we recorded fair value adjustments related to nonfinancial assets measured at fair value on a nonrecurring basis during thethree and six months ended June 30, 2019, 2020.we did

not13 record any fair value adjustments related to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.

GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

11.10.  Construction Joint Ventures

We participate in various construction joint ventures. We have determined that certain of these joint ventures are consolidated because they are variable interest entities (“VIEs”) and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the three and six months ended June 30, 20202021, we determined no change was required for existing joint ventures.

Due to the joint and several nature of the performance obligations under the related owner contracts, if any of the partners fail to perform, we and the remaining partners, if any, would be responsible for performance of the outstanding work (i.e., we provide a performance guarantee). At June 30, 20202021, there was approximately $2.1$1.0 billion of construction revenue to be recognized on unconsolidated and line item construction joint venture contracts of which $0.8$0.4 billion represented our share and the remaining $1.3$0.6 billion represented our partners’ share. We are not able to estimate amounts that may be required beyond the remaining cost of the work to be performed. These costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees.

Consolidated Construction Joint Ventures (“CCJVs”)

At June 30, 20202021, we were engaged in sevennine active CCJV projects with total contract values ranging from $0.7$2.2 million to $413.8$437.5 million and a combined total of $1.6$1.8 billion of which our share was $928.5 million.$1.0 billion. Our share of revenue remaining to be recognized on these CCJVs was $457.5$350.9 million and ranged between less than $0.1from $1.0 million to $188.9$115.8 million. Our proportionate share of the equity in these joint ventures was between 50.0% and 65.0%70.0%. During the three and six months ended June 30, 20202021, total revenue from CCJVs was $86.0$114.9 million and $140.7$197.5 million, respectively, and during the three and six months ended June 30, 20192020, total revenue from CCJVs was $76.5$86.0 million and $139.5$140.7 million, respectively. During the six months ended June 30, 20202021 and 20192020, CCJVs provided $19.8$19.4 million and used $5.3$19.8 million of operating cash flows, respectively.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Unconsolidated Construction Joint Ventures

As of June 30, 20202021, we were engaged in ten active unconsolidated joint venture projects with total contract values ranging from $12.1$13.4 million to $3.8 billion for a combined total of $11.5$11.6 billion of which our share was $3.4 billion. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from 20.0% to 50.0%. As of June 30, 20202021, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $618.6$297.0 million and ranged from $1.2$1.3 million to $168.2$61.4 million.

The following is summary financial information related to unconsolidated construction joint ventures:

       

As Restated

 

(in thousands)

 

June 30, 2020

 

December 31, 2019

 

June 30, 2019

  

June 30, 2021

 

December 31, 2020

 

June 30, 2020

 

Assets

               

Cash, cash equivalents and marketable securities

 $213,285  $179,049  $225,163  $139,381  $181,889  $213,285 

Other current assets (1)

 948,103  972,840  960,406  795,440  767,803  948,103 

Noncurrent assets

 185,866  207,584  214,238  140,160  164,022  185,866 

Less partners’ interest

 908,274  904,565  929,332  716,678  751,125  908,274 

Granite’s interest (1),(2)

 438,980  454,908  470,475  358,303  362,589  438,980 

Liabilities

               

Current liabilities

 515,113  581,199  530,654  432,130  482,562  515,113 

Less partners’ interest and adjustments (3)

 182,035  243,202  200,517  235,649  226,308  182,035 

Granite’s interest

 333,078  337,997  330,137  196,481  256,254  333,078 

Equity in construction joint ventures (4)

 $105,902  $116,911  $140,338  $161,822  $106,335  $105,902 

(1) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets was $82.3 million $81.9 million and $88.7 million related to performance guarantees as of June 30, 20202021, December 31, 20192020 and June 30, 20192020, respectively. related to performance guarantees.

(2) Included in this balance as of June 30, 20202021, December 31, 20192020 and June 30, 20192020, was $80.9$96.7 million, $116.8$88.7 million and $114.1$80.9 million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims. In addition, this balance included $14.1 million, $13.1 million and $18.0 million $15.9 millionas of June 30, 2021, December 31, 2020 and $15.1 millionJune 30, 2020, respectively, related to Granite’s share of estimated recovery of back charge claims as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively.claims.

(3)Partners’ interest and adjustments includes amounts to reconcile total net assets as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences.

(4)Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets was $33.6 million, $82.5 million and $77.6 million $76.2 millionas of June 30, 2021, December 31, 2020 and $79.9 million,June 30, 2020, respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses, as of June 30, 2020, December 31, 2019 and June 30, 2019.

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
      

As Restated

     

As Restated

 
(in thousands)  2020  2019   2020  2019 

Revenue

                

Total

 $384,461  $436,071  $446,491  $852,005 

Less partners’ interest and adjustments (1)

  287,639   334,500   265,967   639,918 

Granite’s interest

  96,822   101,571   180,524   212,087 

Cost of revenue

                

Total

  356,755   456,484   585,215   867,969 

Less partners’ interest and adjustments (1)

  241,560   302,604   374,303   583,031 

Granite’s interest

  115,195   153,880   210,912   284,938 

Granite’s interest in gross loss

 $(18,373) $(52,309) $(30,388) $(72,851)
losses.

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

Revenue

                

Total

 $263,558  $384,461  $495,600  $446,491 

Less partners’ interest and adjustments (1)

  176,657   287,639   328,977   265,967 

Granite’s interest

  86,901   96,822   166,623   180,524 

Cost of revenue

                

Total

  249,494   356,755   497,564   585,215 

Less partners’ interest and adjustments (1)

  169,041   241,560   337,775   374,303 

Granite’s interest

  80,453   115,195   159,789   210,912 

Granite’s interest in gross profit (loss)

 $6,448  $(18,373) $6,834  $(30,388)

(1) Partners’ interest and adjustments includes amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences.

During the three and six months ended June 30, 2021, unconsolidated construction joint venture net income/(loss) was $13.8 million and $(2.2) million, respectively, of which our share was net income of $6.6 million and $7.0 million, respectively. During the three and six months ended June 30, 2020, unconsolidated construction joint venture net income/(loss) was $27.5 million and $(138.5) million, respectively, of which our share was net loss of $(18.7) million and $(30.5) million, respectively. During the three and six months ended June 30, 2019, unconsolidated net loss was $(18.9) million and $(13.7) million, respectively, of which our share was net loss of $(52.5) million and $(72.8) million, respectively. The differences between our share of the joint venture net lossincome/(loss) when compared to the joint venture net income/(loss) primarily resulted from differences between our estimated total revenue and cost of revenue when compared to that of our partners’ on five and fourprojects during both 20202021 and 20192020., respectively. The differences are due to timing differences from varyingdiffering accounting policies and in public company quarterly reporting requirements. These joint venture net income/(loss) amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes.

Line Item Joint Ventures

As of June 30, 20202021, we had 4were engaged in three active line item joint venture construction projects with a total contract value of $327.8$280.2 million of which our portion was $182.8$172.2 million. As of June 30, 2020, 2021, our share of revenue remaining to be recognized on these line item joint ventures was $133.1$61.2 million. During the three and six months ended June 30, 2021,our portion of revenue from line item joint ventures was $20.1 million and $28.7 million, respectively. During the three and six months ended June 30, 2020, our portion of revenue from line item joint ventures was $18.4 million and $31.2 million, respectively. During the three and six months ended June 30, 2019, our portion of revenue from line item joint ventures was $11.8 million and $12.2 million, respectively.

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GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

12.11.  Investments in Affiliates

Our investments in affiliates balance consists of equity method investments in the following types of entities:

(in thousands)

 

June 30, 2020

 

December 31, 2019

 

June 30, 2019

  

June 30, 2021

 

December 31, 2020

 

June 30, 2020

 

Foreign

 $45,487  $55,335  $55,563  $50,308  $47,650  $45,487 

Real estate

 16,578  17,229  17,781  11,914  12,777  16,578 

Asphalt terminal

 12,446  11,612  8,765  13,403  14,860  12,446 

Total investments in affiliates

 $74,511  $84,176  $82,109  $75,625  $75,287  $74,511 

The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:

(in thousands)

 

June 30, 2020

 

December 31, 2019

 

June 30, 2019

  

June 30, 2021

 

December 31, 2020

 

June 30, 2020

 

Current assets

 $122,608  $122,348  $138,564  $155,442  $133,882  $122,608 

Noncurrent assets

 163,790  165,331  182,561  160,598  164,620  163,790 

Total assets

 286,398  287,679  321,125  316,040  298,502  286,398 

Current liabilities

 54,044  48,322  70,435  71,267  52,583  54,044 

Long-term liabilities (1)

 60,714  61,078  70,381  57,911  66,108  60,714 

Total liabilities

 114,758  109,400  140,816  129,178  118,691  114,758 

Net assets

 171,640  178,279  180,309  186,862  179,811  171,640 

Granite’s share of net assets

 $74,511  $84,176  $82,109  $75,625  $75,287  $74,511 

(1)The balance primarily related to local bank debt for equipment purchases and working capital in our foreign affiliates and debt associated with our real estate investments.

Of the $286.4$316.0 million of total affiliate assets as of June 30, 20202021, we had investments in thirteen foreign entities with total assets ranging from $0.2$0.1 million to $72.2$82.1 million, threetwo real estate entities with total assets ranging from $8.1 million to $35.1of $66.2 million and the asphalt terminal entity had total assets of $28.6$35.3 million. We have direct and indirect investments in the foreign entities and our percent ownership ranged from 25% to 50% as of June 30, 20202021. During the six months ended June 30, 2020,we recorded ana $9.6 million impairment charge related to our investment in foreign affiliates. See Note 43 for further discussion of the impairment charge. The equity methodAs of June 30, 2021 and December 31, 2020, all of the investments in real estate affiliates includedwere in residential real estate in Texas. As of June 30, 2020, $13.2 million $13.6 million and $14.2 millionof the investments in real estate affiliates was in residential real estate in Texas as of June 30, 2020, December 31, 2019and June 30, 2019, respectively.the remaining balance was in commercial real estate in Texas. Our percent ownership in the real estate entities ranged from 18% to 47%was between 10% and 25% as of June 30, 20202021. The remaining balances were in commercial real estate in Texas.  

 

13.12.  Property and Equipment, net

Balances of major classes of assets and total accumulated depreciation and depletion are included in property and equipment, net in the condensed consolidated balance sheets and were as follows:

     

As Restated

 
(in thousands) June 30, 2020 December 31, 2019 June 30, 2019  

June 30, 2021

 

December 31, 2020

 

June 30, 2020

 

Equipment and vehicles

 $959,083  $947,687  $943,456  $991,812  $950,416  $959,083 

Quarry property

 196,033  188,960  191,972  195,284  206,073  196,033 

Land and land improvements

 135,707  132,531  135,411  127,417  135,639  135,707 

Buildings and leasehold improvements

 121,387  122,316  109,356  122,343  124,578  121,387 

Office furniture and equipment

 69,258  67,991  66,587  76,682  73,512  69,258 

Property and equipment

 1,481,468  1,459,485  1,446,782  1,513,538  1,490,218  1,481,468 

Less: accumulated depreciation and depletion

 941,415  917,188  888,404  996,395  963,202  941,415 

Property and equipment, net

 $540,053  $542,297  $558,378  $517,143  $527,016  $540,053 

 

On June 30, 2021, we completed a sale-leaseback transaction associated with two properties in California. Sale of these properties resulted in a reduction in net property and equipment of $11.1 million and a $2.4 million addition to right of use assets and lease liabilities on the condensed consolidated balance sheets, as well as a $29.7 million gain on sales of property and equipment on the condensed consolidated statements of operations.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

 

14.13.  Long-Term Debt and Credit Arrangements

(in thousands)

 

June 30, 2020

 

December 31, 2019

 

June 30, 2019

  

June 30, 2021

 

December 31, 2020

 

June 30, 2020

 

2.75% Convertible Notes

 $196,946  $193,696  $0 

2.75% Convertible Notes

 $203,771  $200,303  $196,946 

Credit Agreement - term loan

 135,000  138,750  142,500  127,500  131,250  135,000 

Credit Agreement - revolving credit facility

 75,000  25,000  220,000  0  0  75,000 

2019 Notes

 0  0  40,000 

Debt issuance costs and other

 7,077  6,906  12,793  8,660  7,247  7,077 

Total debt

 414,023  364,352  415,293  339,931  338,800  414,023 

Less current maturities

 8,253  8,244  48,397  8,709  8,278  8,253 

Total long-term debt

 $405,770  $356,108  $366,896  $331,222  $330,522  $405,770 

The aggregate minimum principal maturitiesAs of long-term debt related to balances ateach June 30, 2021, 30,December 31, 2020 excluding debt issuance costs, including current maturities and the $33.1 million unamortized debt discount related to the 2.75% Convertible Notes are as follows: $4.2 million during the remainder of 2020; $8.5 million in 2021; $8.5 million in 2022; $192.3 million in 2023; $231.1 million in 2024; and $7.9 million in 2025 and thereafter.

Credit Agreement

On March 26, 2020, we entered into Amendment No.3 to the Third Amended and Restated Credit Agreement, which among other things, (i) reduced the revolving credit facility from $350.0 million to $275.0 million; (ii) amended the definition of Applicable Rate; (iii) amended the definition of Consolidated EBITDA which is used in the Consolidated Leverage Ratio financial covenant calculation; and (iv) modified certain financial covenants to allow for investments in certain large projects during 2020.

On June 19, 2020 and November 12,2020, we entered into Amendments No.4 and No.June 30, 20205, respectively, to the Third Amended and Restated Credit Agreement, which, among other things, provided additional timing for the Company to deliver annual and quarterly financial statements. 

On February 19, 2021, we entered into the Limited Waiver and Amendment No.6 to the Third Amended and Restated Credit Agreement which waives any defaults or events of defaults that may have arisen in connection with the Company’s restatement during the periods covered by the restatement, the failure to comply with a financial covenant and any right, $7.5 million of the lenders to collect interest atterm loan portion of the default rate with respect to the waived defaults and events of default.

We refer to Third Amended and Restated Credit Agreement dated May 31, 2018 (and all subsequent amendments listed above as subsequently amended, the “Credit Agreement.” 

The Credit Agreement consists of a term loan and a revolving credit facility. 

The term loan requires that Granite repay 1.25% of the original $150.0 million principal balance each quarter until the maturity date, at which point the remaining balance is due. As of each June 30, 2020, December 31, 2019 and June 30, 2019, $7.5 million of the term loan balanceAgreement”) was included in current maturities of long-term debt on the condensed consolidated balance sheets and the remaining $127.5$120.0 million, $131.3$123.8 million and $135.0$127.5 million, respectively, was included in long-term debt.

As of June 30, 202130,2020,, the total unused availability under the Credit Agreement was $168.8$226.6 million resulting from $31.2$48.4 million in issued and outstanding letters of credit and $75.0 million0 amount was drawn under the revolving credit facility. The letters of credit had expiration dates between October 2020July 2022 and December 2023.2024. 

BorrowingsAs of June 30, 2021, the Applicable Rate was 1.63% for loans under the Credit Agreement bearbearing interest based on LIBOR and 0.63% for loans bearing interest at the Base Rate. Accordingly, the effective interest rates at June 30, 2021, for LIBOR subjectand Base Rate loans were 2.38% and 3.88%, respectively. We elected to a 75 basis point floor, or a base rate (at our option)use LIBOR for the term loan.

As of June 30, 2021, plus an applicable margin based on the Consolidated Leverage Ratio (as defined in the Credit Agreement) calculated quarterly. LIBOR varies based on the applicable loan term, market conditions and other external factors. The applicable margin was 3.00% for loans bearing interest based on LIBOR and 2.00% for loans bearing interest at the base rate at June 30, 2020. Accordingly, the effective interest rate at June 30, 2020 using three-month LIBOR and the base rate was 3.75% and 5.25%, respectively, and we elected to use LIBOR for both the term loan and the revolving credit facility.

2.75% Convertible Notes

In November 2019, we issued an aggregate principal amount of $230.0 million of convertible senior notes (the “2.75% Convertible Notes”) at an interest rate of 2.75% per annum payable semiannually in arrears on May 1 and November 1 of each year, beginning on May 1,2020 and maturing on November 1,2024, unless earlier converted, redeemed or repurchased.

As of June 30, 2020 and December 31, 2019, the carrying amount of the liability component was $196.9 million and $193.7 million, respectively. As of June 30,2020 and December 31, 2019, the unamortized debt discount was $33.1 million and $36.3 million, respectively.

On October 29,2019, in connection with the offering of our 2.75% Convertible Notes, we entered into a purchased equity derivative instrument (“Hedge Option”) and sold warrants to reduce the cost of the Hedge Option. The Hedge Option and warrants were included in additional paid-in capital on the condensed consolidated balance sheets and were $27.9 million and $11.2 million,, respectively, as of  both June 30,2020 and December 31, 2019.

On May 4, 2020, the Company notified the Trustee for the 2.75% Convertible Notes that beginning May 5, 2020 until the date on which the Company regained compliance with its filing requirements under section 4.06(d) of the indenture, the Company would pay 0.50% per annum of additional interest to the Noteholders on the November 1st and May 1st semi-annual coupon payment dates. 

2019 Notes

As of June 30, 2019, senior notes payable in the amount of $40.0 million were due to a group of institutional holders, and had an interest rate of 6.11% per annum and were originally due in December 2019 (“2019 Notes”). On July 29, 2019, we called and redeemed the $40.0 million outstanding balance. 

Covenants and Events of Default

Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the indenture governing our 2.75% Convertible Notes or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. A default under the indenture governing our 2.75% Convertible Notes could result in acceleration of the maturity of the notes.

The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of June 30, 2020, the Consolidated Leverage Ratio was 2.27,1.69, which did not exceed the maximum of 3.25. Our3.00 and the Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) was 7.89,8.26, which exceeded the minimum of 4.00. To accommodate the delays in filing our financial statements, we entered into amendments with our lenders to extend the deadline for filing the 2019 Annual Report on Form 10-K and all of our 2020 Quarterly Reports on Form 10-Qs to February 28,2021.

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15.Leases

We have leases for office and shop space, as well as for equipment primarily utilized in our construction projects. As of June 30, 2020, our lease contracts were classified as operating leases and had terms ranging from month-to-month to 23 years. As of June 30, 2020, December 31, 2019 and June 30, 2019, right of use (“ROU”) assets and long term lease liabilities were separately presented and short term lease liabilities of $19.0 million, $17.0 million and $15.6 million, respectively, were included in accrued and other current liabilities on our condensed consolidated balance sheets.

As of June 30, 20202021, December 31, 20192020 and June 30, 20192020, we hadthe carrying amount of the liability component of the no2.75% lease contracts that had not yet commenced but created significant rights and obligations.

Lease expenseConvertible Notes was $5.4$203.8 million, $200.3 million and $10.6$196.9 million, duringrespectively. As of June 30, 2021, December 31, 2020 and June 30, 2020, the unamortized debt discount was $26.2 million, $29.7 million and $33.1 million, respectively.

During the three and six months ended June 30, 2021, we recorded $1.8 million and $3.5 million, respectively, of amortization related to the debt discount on the 2.75% Convertible Notes to interest expense in our condensed consolidated statements of operations and $0.6 million and $1.2 million, respectively, of amortization related to debt issuance costs and fees to other (income) expense, net in our condensed consolidated statements of operations. During the three and six months ended June 30, 2020,, respectively and $4.6we recorded $1.6 million and $8.9$3.2 million, during the three and six months ended June 30, 2019, respectively. Asrespectively, of June 30, 2020, December 31, 2019 and June 30, 2019, our weighted-average remaining lease term was 5.4 years, 5.8 years and 6.3 years, respectively, and the weighted-average discount rate was 3.90%, 3.97% and 4.08%, respectively. As of June 30, 2020, December 31, 2019 and June 30, 2019, the lease liability was equalamortization related to the present valuedebt discount on the 2.75% Convertible Notes to interest expense in our condensed consolidated statements of operations and $0.2 million and $1.1 million, respectively, of amortization related to debt issuance costs and fees to other (income) expense, net in our condensed consolidated statements of operations. These amounts were presented as amortization related to the remaining lease payments, discounted using the incremental borrowing rate2.75% Convertible Notes on our secured debt, using one maturity discount rate that is updated quarterly, as it is not materially different than the discount rates applied to eachcondensed consolidated statements of the leases in the portfolio.

The following table summarizes our undiscounted lease liabilities outstanding as of June 30, 2020 (in thousands):

Remainder of 2020

 $11,100 

2021

  21,099 

2022

  18,752 

2023

  12,707 

2024

  7,415 

2025 through 2036

  13,600 

Total future minimum lease payments

  84,673 

Less: imputed interest

  (9,578)

Total

 $75,095 

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cash flows.

 

16.14.  Weighted Average Shares Outstanding and Net Income (Loss) Per Share

The following table presents a reconciliation of the weighted average shares outstanding used in calculating basic and diluted net income (loss) per share as well as the calculation of basic and diluted net income (loss) per share:

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 
    

As Restated

   

As Restated

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
(in thousands, except per share amounts) 2020 2019 2020 2019  

2021

 

2020

 

2021

 

2020

 

Numerator (basic and diluted)

                    
Net income (loss) allocated to common shareholders for basic calculation $3,405 $(24,242) $(61,965) $(86,712) $54,461  $3,405  $(11,734) $(61,965)

Denominator

                    

Weighted average common shares outstanding, basic

 45,620  46,824  45,570  46,762  45,798  45,620  45,748  45,570 

Dilutive effect of RSUs and 2.75% Convertible Notes (1),(2)

 661  0  0  0 

Dilutive effect of RSUs (1)

 454 661 0 0 

Dilutive effect of 2.75% Convertible Notes (2)

 1,546  0  0  0 

Weighted average common shares outstanding, diluted

 46,281  46,824  45,570  46,762  47,798  46,281  45,748  45,570 
Net income (loss) per share, basic $0.07 $(0.52) $(1.36) $(1.85) $1.19 $0.07 $(0.26) $(1.36)
Net income (loss) per share, diluted $0.07 $(0.52) $(1.36) $(1.85) $1.14 $0.07 $(0.26) $(1.36)

(1) Due to the net loss, RSUs representing approximately 552,000losses for the six months ended June 30, 2021 and 2020,, and RSUs representing approximately 375,000503,000 and 398,000 for the three and six months ended June 30, 2019,552,000 shares, respectively, have been excluded from the number of shares used in calculating diluted net loss per share, as their inclusion would be antidilutive.

(2) AsAlthough the average price of our common stock for the period was below $31.47greater than the initial conversion price of $31.47 per share, sincedue to the issuance datenet loss for the six months ended June 30, 2021, approximately 1.0 million shares related to the 2.75% Convertible Notes converting into shares of the 2.75% Convertible Notes,common stock have been excluded from the number of shares used in calculating diluted net loss per share as their inclusion would be antidilutive. The number of shares used in calculating diluted net income (loss) per share for the three and six months ended June 30, 2020excluded the potential dilution from the 2.75% Convertible Notes converting into shares of common stock.  stock as the average price of our common stock was below $31.47 per share for those periods.

 

17.15.  Income Taxes

The following table presents the benefit fromprovision for (benefit from) income taxes for the respective periods:

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 
    

2019

   

2019

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
(dollars in thousands) 2020 As Restated 2020 As Restated  

2021

 

2020

 

2021

 

2020

 

Benefit from income taxes

 $(1,782) $(5,913) $(16,492) $(23,263)

Provision for (benefit from) income taxes

 $15,619  $(1,782) $(6,836) $(16,492)

Effective tax rate

 64.7% 21.5% 18.3% 22.2% 21.9% 64.7% 41.7% 18.3%

Our effective tax rate for the three months ended June 30, 20202021 increaseddecreased to 64.7%21.9% from 21.5%64.7%, when compared to the same period in 20192020. This change was primarily due to the impact of adjusting our estimate of our annual effective tax rate relative to the loss before benefit from income taxes for the three months ended June 30, 20202020. . Our effective tax rate for the six months ended June 30, 20202021 decreasedincreased to 18.3%41.7% from 22.2%18.3%, when compared to the same period in 20192020.. This change was primarily due to the goodwill impairment and the investment in affiliates impairment which is discrete to the six months ended June 30, 2020and resulted in no discrete tax benefit. See Note 43 for discussion of the impairment charges. The $66.0 million in settlement charges discussed in Note 16 are discrete to the six months ended June 30, 2021 which resulted in a discrete tax benefit of $17.0 million.

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18.16.  Contingencies - Legal Proceedings

In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which cannot be predicted with certainty. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes which cannot be predicted with certainty.

Some of the matters in which we or our joint ventures and affiliates are involved may involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any of our pending legal proceedings may be subject to early resolution as a result of our ongoing efforts to resolve the proceedings, whether or when any legal proceeding will be resolved is neither predictable nor guaranteed.

Accordingly, it is possible that future developments in such proceedings and inquiries could require us to (i) adjust existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition to matters that are considered probable for which the loss can be reasonably estimated, disclosure is also provided when it is reasonably possible and estimable that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the amount recorded.

Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in the consolidated balance sheets. The aggregate liabilities recorded as of June 30, 2021 were $66.0 million and as of December 31, 2020 and 2019June 30, 2020 related to these matters were immaterial. The aggregate range of possible loss related to (i) matters considered reasonably possible, and (ii) reasonably possible amounts in excess of accrued losses recorded for probable loss contingencies, including those related to liquidated damages, could have a material impact on our consolidated financial statements if they become probable and the reasonably estimable amount is determined.

On August 13, 2019, a securities class action was filed in the United States District Court for the Northern District of California against the Company, James H. Roberts, our former President and Chief Executive Officer, and Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer. An Amended Complaintamended complaint was filed on February 20, 2020 that, among other things, added Laurel Krzeminski, our former Chief Financial Officer, as a defendant. The amended complaint is brought on behalf of an alleged class of persons or entities that acquired our common stock between April 30, 2018 and October 24, 2019, and alleges claims arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. After the filing of the amended complaint, this case was re-titled Police Retirement System of St. Louis v. Granite Construction Incorporated, et. al.The Amended Complaintamended complaint seeks damages based on allegations that in the Company’s SEC filings the defendants made false and/or misleading statements and failed to disclose material adverse facts aboutin the Company’s SEC filings about its business, operations and prospects. On May 20, 2020, the Courtcourt denied, in part, the Defendants’ Motiondefendants’ motion to Dismissdismiss the Amended Complaint.amended complaint. On January 21, 2021, the Courtcourt granted Plaintiff’s motion for class certification. We are in the pretrial stages of the litigation, and we cannot predict the outcome or consequences of this case, which we intend to defend vigorously. 

On October 23, 2019, a putative class action lawsuit, titled Nasseri v. Granite Construction Incorporated, et. al., was filed in the Superior Court of California, County of Santa Cruz against the Company, James H. Roberts, our former President and Chief Executive Officer;Officer, Laurel Krzeminski, our former Chief Financial Officer, and the then-serving Board of Directors on behalf of persons who acquired shares of Company common stock in the Company’s June 2018 merger with Layne. The complaint asserts causes of action under the Securities Act of 1933 and alleges that the registration statement and prospectus were negligently prepared and included materially false and misleading statements and failed to disclose facts required to be disclosed. On August 10, 2020, the Courtcourt sustained our demurrer dismissing the complaint with leave to amend. On September 16, 2020, the plaintiff filed an amended complaint. We have filed a demurrer seeking to dismiss the amended complaint. We areOn April 9, 2021, the court entered an order overruling our demurrer seeking to dismiss the amended complaint. On May 14, 2021, the plaintiff filed a motion for class certification. On July 26, 2021, we filed a motion to stay the case pending the federal court’s review of the proposed settlement in Police Retirement System of St. Louis v. Granite Construction Incorporated, et al.

On April 29, 2021, we entered into a stipulation of settlement (the “Settlement Agreement”) to settle Police Retirement System of St. Louis v. Granite Construction Incorporated, et al.  The Settlement Agreement also settles claims alleged in Nasseri v. Granite Construction Incorporated, et al. The settlement is subject to court approval.

Under the Settlement Agreement, the Company will pay or cause to be paid a total of $129 million in cash, $63 million of which it expects to be paid through insurance proceeds.  The payment will be paid to a settlement fund that will be used to pay all settlement fees and expenses, attorneys’ fees and expenses, and cash payments to members of the settlement class. The settlement class has agreed to release us, the other defendants named in the preliminary stageslawsuits and certain of their respective related parties from any and all claims, rights, causes of action, liabilities, actions, suits, damages or demands of any kind whatsoever, that relate in any way to the purchase, acquisition, holding, sale or disposition of our common stock during the period between February 17, 2017 and October 24, 2019 that arose out of or are based upon or related to the facts alleged or the claims or allegations set forth in Police Retirement System of St. Louis v. Granite Construction Incorporated, et al. or relate in any way to any alleged violation of the litigationSecurities Act of 1933, the Securities Exchange Act of 1934, or any other state, federal or foreign jurisdiction’s securities or other laws, any alleged misstatement, omission or disclosure (including in financial statements) or other alleged securities-related wrongdoing or misconduct, including all claims alleged in Nasseri v. Granite Construction Incorporated, et al. The Settlement Agreement contains no admission of liability, wrongdoing or responsibility by any of the parties.

On April 30, 2021, the class representative filed a motion for preliminary approval of the settlement, which is still under review by the court. The plaintiff in Nasseri v. Granite Construction Incorporated, et al. has been permitted to intervene, although the court has denied his application to be appointed as additional lead plaintiff. If the court preliminarily approves the settlement, members of the settlement class will be provided notice of, and asan opportunity to object to, the settlement at a fairness hearing to be held by the court to determine whether the settlement should be finally approved and whether the proposed order and final judgment should be entered. If the court approves the settlement, including the payment and release described above, and enters such order and final judgment, and such judgment is no longer subject to further appeal or other review, the settlement fund will be disbursed in accordance with a plan of allocation approved by the court and the release will be effective to all members of the settlement class.

As a result of entering into the Settlement Agreement, we cannot predictrecorded a pre-tax charge of approximately $66 million in the outcome or consequences of the case, which we intend to defend vigorously.quarter ended March 31, 2021.

On May 6, 2020, a stockholder derivative lawsuit was filed in the United States District Court for the Northern District of California against James H. Roberts, our former President and Chief Executive Officer, Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer, Laurel Krzeminski, our former Chief Financial Officer, and our then-current Board of Directors, (collectively, the “Individual Defendants”), and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and violations of the Securities Exchange Act of 1934 that allegedly occurred between April 30, 2018 and October 24, 2019. The lawsuit alleges that the Individual Defendantsindividual defendants each knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The Complaintcomplaint seeks monetary damages and corporate governance reforms. The Courtcourt has ordered that the lawsuit in the derivative action be stayed until further order of the Courtcourt or until entry of a final judgment in the putative securities class action lawsuit filed in the United States District Court for the Northern District of California.

On May 12, 2021, a stockholder derivative lawsuit was filed in the Delaware Court of Chancery against James H. Roberts, Jigisha Desai, Laurel Krzeminski, Craig Hall, our Senior Vice President, General Counsel, Corporate Compliance Officer, and Secretary, and our then-current Board of Directors, and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and aiding and abetting breach of fiduciary duty that allegedly occurred between April 30, 2018 and October 24, 2019. The lawsuit alleges that the individual defendants each knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The complaint seeks monetary damages and corporate governance reforms.

We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of this case,these cases, which we intend to defend vigorously.

As of June 30, 2020, no30,2021, other than the $66 million charge described above, we did not record any liability related to the above matters was recorded because we have concluded such liabilities arewere not probable and the amounts of such liabilities are not reasonably estimable.

We were informed on July 20, 2021 of an arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractor of the Salesforce Tower office building in San Francisco and related damages. Layne was a subcontractor on the foundation for the Salesforce Tower office building in 2013 and 2014. Certain anomalies were discovered in March 2014 in the foundation’s structural concrete, which were remediated by the general contractor during 2015. Layne assigned any insurance claims it may have had under the project’s builder’s risk insurance policy to the general contractor. During 2014, the project owner and the general contractor submitted a claim to the project’s builder’s risk insurers to cover the cost of remedial work and related damages. The claim was denied by the builder’s risk insurers. The project owner and the general contractor subsequently filed a legal proceeding against the insurers seeking coverage under the builder’s risk insurance policy, which proceeding was then transferred by agreement to arbitration. Although we were not a party to this legal proceeding, we believe, based on court filings and developments in the arbitration, that the project owner and the general contractor asserted a claim for damages against the project’s builder’s risk insurers for approximately $100 million. In connection with our acquisition of Layne in June 2018, we assumed any potential liability relating to this project. Based on the arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractor of the Salesforce Tower office building and related damages, management believes it is probable that claims could be brought against the Company by the general contractor related to Layne’s involvement in the original project. We believe we have multiple defenses and counterclaims to any claims that are brought against us and intend to defend against the claims and prosecute any counterclaims vigorously. As of the date of this report, no action has been filed against us. While we believe a claim is probable, we do not believe the amount of any liabilities related to the claim are reasonably estimable at this time. Accordingly, no provision has been made in our consolidated financial statements.

In connection with our disclosure of the AuditAudit/Compliance Committee’s independent Investigation,investigation of prior-period reporting for the Heavy Civil operating group and the extent to which those matters affected the effectiveness of the Company’s internal control over financial reporting (the “Investigation”), we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the Investigation. The SEC has issued us subpoenas for documents in connection with the independentaccounting issues identified in the Investigation. We have produced documents to the SEC regarding the accounting issues identified during the independent Investigation and will continue to cooperate with the SEC in its investigation.

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19.17.  Business Segment Information

Summarized segment information is as follows (in thousands):

Three Months Ended June 30,

 

Transportation

 

Water

 

Specialty

 

Materials

 

Total

  

Transportation

 

Water

 

Specialty

 

Materials

 

Total

 

2020

          

2021

          
Total revenue from reportable segments $535,101  $109,724  $174,914  $141,858  $961,597  $525,235  $113,432  $200,271  $176,841  $1,015,779 

Elimination of intersegment revenue

 0  0  0  (45,826) (45,826) 0  0  0  (51,607) (51,607)
Revenue from external customers 535,101  109,724  174,914  96,032  915,771  525,235  113,432  200,271  125,234  964,172 
Gross profit 31,197  12,579  25,280  19,287  88,343  59,517  10,563  24,369  22,497  116,946 

Depreciation, depletion and amortization

 4,391  9,577  6,737  5,470  26,175  5,570  7,323  5,674  6,681  25,248 

 

2019 (As Restated)

          

2020

          

Total revenue from reportable segments

 $481,746  $112,070  $174,629  $153,343  $921,788  $535,101  $109,724  $174,914  $141,858  $961,597 

Elimination of intersegment revenue

 0  0  0  (55,696) (55,696) 0  0  0  (45,826) (45,826)

Revenue from external customers

 481,746  112,070  174,629  97,647  866,092  535,101  109,724  174,914  96,032  915,771 

Gross profit

 499  10,502  21,755  14,002  46,758  31,197  12,579  25,280  19,287  88,343 

Depreciation, depletion and amortization

 4,845  10,931  8,401  6,054  30,231  4,391  9,577  6,737  5,470  26,175 

Six Months Ended June 30,

 

Transportation

 

Water

 

Specialty

 

Materials

 

Total

  

Transportation

 

Water

 

Specialty

 

Materials

 

Total

 

2020

          

2021

          

Total revenue from reportable segments

 $886,002  $211,381  $307,953  $206,510  $1,611,846  $876,264 $213,185 $355,945 $255,990 $1,701,384 

Elimination of intersegment revenue

 0  0  0  (60,148) (60,148) 0  0  0  (67,299) (67,299)

Revenue from external customers

 886,002  211,381  307,953  146,362  1,551,698  876,264 213,185 355,945 188,691 1,634,085 

Gross profit

 56,566  21,926  14,561  19,089  112,142  95,383 19,129 41,694 24,058 180,264 

Depreciation, depletion and amortization

 9,417  19,141  13,120  10,443  52,121  10,082  14,603  10,251  12,315  47,251 

Segment assets

 304,312  267,385  123,881  377,909  1,073,487  308,918  113,986  104,128  364,413  891,445 

 

2019 (As Restated)

          

2020

          

Total revenue from reportable segments

 $783,710  $211,152  $313,753  $203,899  $1,512,514  $886,002  $211,381  $307,953  $206,510  $1,611,846 

Elimination of intersegment revenue

 0  0  0  (64,609) (64,609) 0  0  0  (60,148) (60,148)

Revenue from external customers

 783,710  211,152  313,753  139,290  1,447,905  886,002  211,381  307,953  146,362  1,551,698 

Gross (loss) profit

 (15,849) 18,448  35,053  10,244  47,896 

Gross profit

 56,566  21,926  14,561  19,089  112,142 

Depreciation, depletion and amortization

 8,485  21,987  14,213  11,633  56,318  9,417  19,141  13,120  10,443  52,121 

Segment assets

 329,140  302,143  146,346  379,648  1,157,277  304,312  267,385  123,881  377,909  1,073,487 

A reconciliation of segment gross profit (loss) to consolidated income (loss) before provision for (benefit from) income taxes is as follows:

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
      

As Restated

      

As Restated

 

(in thousands)

 

2020

  

2019

  

2020

  

2019

 
Total gross profit from reportable segments $88,343  $46,758  $112,142  $47,896 

Selling, general and administrative expenses

  91,682   70,998   170,063   151,153 
Acquisition and integration expenses  —   9,177   —   11,025 
Non-cash impairment charges (See Note 4)  —   —   24,413   — 

Gain on sales of property and equipment

  (1,190)  (4,935) 

(1,813

)  (6,835)

Total other expense (income)

  606   (923)  9,482   (2,777)
Loss before benefit from income taxes $(2,755) $(27,559) $(90,003) $(104,670)
  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

Total gross profit from reportable segments

 $116,946  $88,343  $180,264  $112,142 

Selling, general and administrative expenses

  74,069   78,023   149,797   151,239 

Non-cash impairment charges (see Note 3)

  0   0   0   24,413 

Other costs (see Note 3)

  5,953   13,659   81,788   18,824 

Gain on sales of property and equipment (see Note 12)

  (31,636)  (1,190)  (34,190)  (1,813)

Total other (income) expense

  (2,806)  606   (719)  9,482 

Income (loss) before provision for (benefit from) income taxes

 $71,366  $(2,755) $(16,412) $(90,003)

 

23
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Disclosure

From time to time, Granite makes certain comments and disclosures in reports and statements, including in this Quarterly Report on Form 10-Q, or statements made by its officers or directors, that are not based on historical facts, including statements regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, backlog,committed and awarded projects, and results, that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,” “plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable terminology or by the context in which they are made. In addition, other written or oral statements that constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, backlog,committed and awarded projects, and results. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, those more specifically described in our Annual Report on Form 10-K under “Item 1A. Risk Factors.” Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason.

Overview

We are one of the largest diversified infrastructure companies in the United States,States. We are engaged in infrastructurea wide array of projects including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, trenchless and underground utilities, power-related facilities, water-related facilities, well drilling, utilities, tunnels, dams, and other infrastructure-related projects, site preparation, mining services, and construction management professional services. We are also engaged in a variety of infrastructure services including those for airports, residential development, energy development, commercial and industrial sites, and other facilities, as well as construction management professional services.sites. We have four reportable business segments: Transportation, Water, Specialty and Materials (see Note 1917 of “Notes to the Condensed Consolidated Financial Statements”). In addition to business segments, we review our business by operating groups. Our operating groups are California, Federal, Heavy Civil, Northwest, Midwest and Water and Mineral Services.

The five primary economic drivers of our business are (i) the overall health of the U.S. economy; (ii) federal, state and local public funding levels; (iii) population growth resulting in public and private development; (iv) the need to build, replace or repair aging infrastructure; and (v) the pricing of certain commodity related products. Changes in these drivers can either reduce our revenues and/or gross profit margins or provide opportunities for revenue growth and gross profit margin improvement.

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Current Economic Environment and Outlook

Impact of COVID-19 on Our Business

The COVID-19 pandemic has resulted, and is likely to continue to result, in substantial economic disruption for the foreseeable future. While there is optimism that the pandemic will come to an end with the prevalence of vaccines, significant uncertainty continues to exist with the resurgence of cases and the economic restrictions in many states.    

With regard to the COVID-19 pandemic our first prioritycontinues to have a significant impact around the country and the world, there has been significant improvement in the United States. Granite’s approach to the pandemic is to continue to do everything we can to ensureled by prioritizing the safety, health and hygiene of our employees, customers, suppliers and others with whom we partner in our business activities. SubjectAs of the end of the second quarter of 2021, our business has largely returned to thatpre-pandemic levels of activity with locales across our footprint removing most pandemic restrictions. However, we continue to closely monitor developments related to COVID-19, which continue to be highly uncertain and with appropriate risk mitigation and safety practices, we are doing everything we can to carry oncould adversely impact our operations and financial results in this unprecedented business environment in which we find ourselves.future periods. 

Work on most of our projects continues as the Company performs services that are categorized under one or more of the “Essential Critical Infrastructure Sectors,” as defined by federal and state law. However, our operations in Mexico and Canada have been impacted with local COVID-19 work restrictions and travel bans, and we have experienced temporary suspensions or reduced project activities as a result of COVID-19 contributing in some cases to employee and subcontractor absences. This disruption has been most impactful to our Water and Mineral Services Group and certain operations located in Washington and Arizona.     

In the face of rapidly changing market conditions, we are continually monitoring the status of our

Our consolidated balance sheet and access to liquidity. Despite the ongoing pandemic, our balance sheet has strengthened in response to the efforts of our teams across the country. Given the uncertain market environment including the uncertain impact of reduced state and local tax receipts due to the pandemic, Granite continuesliquidity continue to be focusedstrong through the second quarter of 2021 and we expect it to continue to remain strong as we continue to focus on working capital management and reinvestment in our liquidity through maximizing the return on capital investments and minimizing travel and related expenditures.

Granite’s backlog continues to be strong. This year we are seeing increased interest in best-value or alternative delivery procurement work by the state Department of Transportations, such as California and Utah, along with other state agencies. This shift will create a delay in certain project bookings in the short term, but we believe will give us the opportunity for larger future work with historically higher margins. 

businesses.

Funding for our public work projects, which is around 75% of our portfolio, is dependent on federal, state, regional and local revenues. At the federal level, Congress on September 30, 2020, Congress approved the one-year extension of the Fixing America’s Surface Transportation (“FAST”) Act with flat funding levels as well as a $13.6 billion infusion to the Highway Trust Fund from the general fund, providing state and local governments the visibility needed to plan for 2021 construction programs. In late December 2020, Congress approved a $10 billion relief spending bill for state departments of transportation as part of the Coronavirus Response and Relief Act to help offset pandemic-induced revenue declines. Based on estimates provided by The Federal Highway Administration, over $1.5 billion of the relief fund is apportioned to Granite Construction’s vertically-integrated states. Whilebusinesses. Furthermore, in March 2021, Congress approved the American Rescue Plan Act of 2021 which included $360 billion in Coronavirus State and Local Fiscal Recovery Funds to assist governments' efforts to mitigate fiscal effects on state and local budgets. Within the Coronavirus State and Local Fiscal Recovery Funds, $10 billion is earmarked for infrastructure, with much of it anticipated to go towards clean energy and non-surface transportation projects.

In late June 2021, the Biden Administration and members of a permanent revenue solutionbipartisan Senate group agreed to a roughly $1.2 trillion Bipartisan Infrastructure Framework, proposing for the Highway Trust Fund is not yet$579 billion in place, it continues tonew spending which includes significant new funding proposals for roads, bridges, airports, ports and inland waterway infrastructures. We remain a stabilizing force for transportation markets. We are optimistic that Congress and the Administration will jointly move forward in 2021 to pass a bipartisan Federal Infrastructure Bill,long-term solution that addresses infrastructure investment, which we believe will meaningfully improve the programming visibility for state and local governments, starting with thein mid to late 2022 construction season.

and then building in following years. At state, regional and local levels, voter-approved state and local transportation measures continue to support infrastructure spending. In the November 2020 elections, voters in 18 states approved 94% of state and local ballot initiatives that will provide an additional $14 billion in one-time and recurring revenue for transportation improvements. In California, our top revenue-generating state, a significant part of the state infrastructure spend is funded through Senate Bill 1 (SB-1), the Road Repair and Accountability Act of 2017, which is a 10-year, $54.2 billion program. Revenue collected through SB-1 is on track to increase over the next 5 years. While we are encouraged by these funding supports, our markets are diverse with some of our core states are nevertheless experiencing financial headwinds frombeing more impacted by the pandemic, which may negatively impact transportation infrastructure spending during the first nine months of 2021.pandemic.  We closely monitor these funding trends in all our markets and manage our pursuit pipeline accordingly.

While funding uncertainties caused by the COVID-19 pandemic disrupted the normal cadence of project bids in our water-related construction, water resources and wastewater rehabilitation businesses, market demand and local funding opportunities remain resilient. Across the Water segment’s end markets, states and municipal water authorities are weighing options for overdue water and wastewater infrastructure investment. For our wastewater rehabilitation business, this includes potential awards for infrastructure improvements mandated through consent decrees. At the federal level, Congress approved the Water Resources Development Act of 2020 and authorized spending $9.9 billion for 46 new flood control, harbor, ecosystem and lock and dam projects on waterways across the nation. This legislation unlocked the roughly $10 billion balance in the Harbor Maintenance Trust Fund including allowing access to $500 million in appropriations to the Army Corps.

For a further discussionCorps of Engineers. Furthermore, state and local governments have the discretion to make necessary investments in water and sewer infrastructure using the non-earmarked portion of the uncertaintiesCoronavirus State and business risks associatedLocal Fiscal Recovery Funds approved in March 2021. The American Jobs Plan proposed by the Administration in March also included funding proposals for water and wastewater infrastructure improvements.

As further discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements,” we were informed on July 20, 2021 of an arbitration award denying insurance coverage for claims related to remedial measures undertaken by the general contractor of the Salesforce Tower office building in San Francisco and related damages. Layne was a subcontractor on this project and in connection with the COVID-19 pandemic, see the section entitled “Risk Factors”our acquisition of Layne in June 2018, we assumed any liability related to it. See “Item 1A. Risk Factors—In connection with acquisitions or divestitures, we may become subject to liabilities” and “Item 1A. Risk Factors - We are involved in lawsuits and legal proceedings in the 2019ordinary course of our business and may in the future be subject to other litigation and legal proceedings, and, if any of these are resolved adversely against us, it could harm our business, financial condition and results of operations” in our Annual Report on Form 10-K.10-K for the year ended December 31, 2020 for additional information.

Heavy Civil Strategic Review

Through this challenging time,The Company continues to focus on the Company has not lost sightexecution of its strategic review initiatives related to the Heavy Civil operating group to reduce enterprise exposure to large, complex projects where risks are difficult to mitigate.mitigate which we refer to as the Old Risk Portfolio. The Company concluded that historical industry pricing and associated risk for this type of work does not align with the Company’s stakeholder expectations. Under a new management team, we have narrowed the footprint of our Heavy Civil operating group, including the closure of our New York office in January 2021. Our focus is to pursue opportunities in markets where Granite’s presence, capabilities and resources provide strategic advantages, coupled with strong margin expectations. 

Impact of Independent Audit/Compliance Committee Investigation

As a result of our delay in filing our 2019 Annual Report on Form 10-K, there are jurisdictions across the country where we were unable to bid on public projects due to various financial statement filingstricter bidding criteria and project approval requirements. This has mainly impacted certain public agency bidding opportunities. Granite teams across the country have continued to work with the various public agencies on these challenges. Through the work of Granite teams, the inability to bid in certain jurisdictions has not had a significant impact to Granite’s liquidity or results of operations.

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Results of Operations

Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations of a given quarter are not indicative of the results to be expected for the full year. As described in the Explanatory Note, we have restated our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2019, the impact of which is reflected in the tables below. 

The following table presents a financial summary for the three and six months ended June 30, 20202021 and 2019:2020:

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
      

As Restated

      

As Restated

 

(in thousands)

 

2020

  

2019

  

2020

  

2019

 

Total revenue

 $915,771  $866,092  $1,551,698  $1,447,905 

Gross profit

  88,343   46,758   112,142   47,896 

Selling, general and administrative expenses

  91,682   70,998   170,063   151,153 
Non-cash impairment charges (See Note 4)  —   —   24,413   — 

Operating loss

  (2,149)  (28,482)  (80,521)  (107,447)

Total other expense (income)

  606   (923)  9,482   (2,777)

Amount attributable to non-controlling interests

  4,378   (2,596)  11,546   (5,305)

Net income (loss) attributable to Granite Construction Incorporated

  3,405   (24,242)  (61,965)  (86,712)

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

Total revenue

 $964,172  $915,771  $1,634,085  $1,551,698 

Gross profit

  116,946   88,343   180,264   112,142 

Selling, general and administrative expenses

  74,069   78,023   149,797   151,239 

Non-cash impairment charges (see Note 3 of “Notes to the Condensed Consolidated Financial Statements”)

  —   —   —   24,413 

Other costs (see Note 3 of “Notes to the Condensed Consolidated Financial Statements”)

  5,953   13,659   81,788   18,824 

Gain on sales of property and equipment, net (see Note 12 of “Notes to the Condensed Consolidated Financial Statements”)

  (31,636)  (1,190)  (34,190)  (1,813)

Operating income (loss)

  68,560   (2,149)  (17,131)  (80,521)

Total other (income) expense

  (2,806)  606   (719)  9,482 

Amount attributable to non-controlling interests

  (1,286)  4,378   (2,158)  11,546 

Net income (loss) attributable to Granite Construction Incorporated

  54,461   3,405   (11,734)  (61,965)
 

Revenue

Total Revenue by Segment 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 
       

As Restated

       

As Restated

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(dollars in thousands)

 

2020

 

2019

 

2020

 

2019

  

2021

 

2020

 

2021

 

2020

 

Transportation

 $535,101  58.4% $481,746  55.6% $886,002  57.2% $783,710  54.1% $525,235  54.5% $535,101  58.4% $876,264  53.7% $886,002  57.2%

Water

 109,724  12.0  112,070  12.9  211,381  13.6  211,152  14.6  113,432  11.8  109,724  12.0  213,185  13.0  211,381  13.6 

Specialty

 174,914  19.1  174,629  20.2  307,953  19.8  313,753  21.7  200,271  20.8  174,914  19.1  355,945  21.8  307,953  19.8 

Materials

 96,032  10.5  97,647  11.3  146,362  9.4  139,290  9.6  125,234  12.9  96,032  10.5  188,691  11.5  146,362  9.4 

Total

 $915,771  100.0% $866,092  100.0% $1,551,698  100.0% $1,447,905  100.0% $964,172  100.0% $915,771  100.0% $1,634,085  100.0% $1,551,698  100.0%

Transportation Revenue

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 
       

As Restated

       

As Restated

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(dollars in thousands)

 

2020

 

2019

 

2020

 

2019

  

2021

 

2020

 

2021

 

2020

 
California $159,022 29.7% $138,411 28.8% $253,954 28.7% $207,924 26.5% $176,307  33.6% $159,022  29.7% $287,677 

32.8%

 $253,954  28.7%

Federal

 1,768  0.3  50  0.1  2,166  0.2  77  0.1  3,297  0.6  1,768  0.3  5,151 

0.6

  2,166  0.2 

Heavy Civil

 187,103  35.0  153,760  31.9  354,529  40.0  313,502  39.9  155,868  29.7  187,103  35.0  307,611 

35.1

  354,529  40.0 

Midwest

 34,942  6.5  28,135  5.8  59,185  6.7  46,196  5.9  32,223  6.1  34,942  6.5  49,178 

5.6

  59,185  6.7 

Northwest

 152,266  28.5  161,390  33.4  216,168  24.4  216,011  27.6  157,540  30.0  152,266  28.5  226,647 

25.9

  216,168  24.4 

Total

 $535,101  100.0% $481,746  100.0% $886,002  100.0% $783,710  100.0% $525,235  100.0% $535,101  100.0% $876,264 

100.0%

 $886,002  100.0%

Transportation revenue for the three and six months ended June 30, 2020 increased $53.42021 decreased by $9.9 million, or 11.1%1.8%, and $102.3$9.7 million, or 13.1%1.1%, respectively, when compared to 20192020 primarily due todriven by certain Heavy Civil operating group projects, including those in the Old Risk Portfolio, nearing completion. These decreases were partially offset by increases in the California operating group from beginning the periods with higher CAP (see “Committed and Awarded Projects” section for definition of CAP), increased awards in the California and Northwest operating groups and in the Heavy Civil operating group from thea decrease in the net negative impact of revisions in estimates when compared to 20192020 (see Note 54 of “Notes to the Condensed Consolidated Financial Statements” for more information) as well as from an increase in the California and Midwest operating groups which began the year with higher contract backlog.. During the three and six months ended June 30, 20202021 and 20192020, the majority of revenue earned in the Transportation segment was from the public sector.

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Water Revenue

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 
     As Restated     As Restated  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(dollars in thousands)

 

2020

 

2019

 

2020

 

2019

  

2021

 

2020

 

2021

 

2020

 

California

 $8,215  7.4% $2,634  2.3% $13,727  6.5% $4,000  1.9% $7,982  7.0% $8,215  7.4% $18,981 

8.9%

 $13,727  6.5%

Federal

 587  0.5  371  0.3  968  0.5  879  0.4  27  —  587  0.5  157 

0.1

  968  0.5 

Heavy Civil

 11,173  10.2  2,620  2.3  18,275  8.6  6,981  3.3  6,056  5.3  11,173  10.2  13,398 

6.3

  18,275  8.6 

Midwest

 152  0.1  —  —  152  0.1  84  0.1  —  —  152  0.1  — 

—

  152  0.1 

Northwest

 2,243  2.1  1,349  1.2  3,900  1.8  2,580  1.2  644  0.6  2,243  2.1  2,078 

1.0

  3,900  1.8 

Water and Mineral Services

 87,354  79.7  105,096  93.9  174,359  82.5  196,628  93.1  98,723  87.1  87,354  79.7  178,571 

83.7

  174,359  82.5 

Total

 $109,724  100.0% $112,070  100.0% $211,381  100.0% $211,152  100.0% $113,432  100.0% $109,724  100.0% $213,185 

100.0%

 $211,381  100.0%

Water revenue for the three and six months ended June 30, 2020 decreased2021 increased by $2.3$3.7 million, or 2.1%3.4%, and $0.2$1.8 million, or 0.1%0.9%, respectively, when compared to 20192020. The increases were primarily due to decreasesdriven by increased demand for water supply and maintenance services amidst the western U.S. drought conditions, as well as lower activity levels in 2020 as a result of the Water and Mineral Services operating group fromCOVID-19 pandemic which caused delays in recently awarded projects and deferrals in bidding processes as a result of the COVID-19 pandemic. Decreases were partially offset by increases in the Heavy Civil and California operating groups from beginning the year with higher contract backlog.processes. During the three and six months ended June 30, 20202021 and 20192020, the majority of revenue earned in the Water segment was from the public sector.

Specialty Revenue

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 
     As Restated     As Restated  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(dollars in thousands)

 

2020

 

2019

 

2020

 

2019

  

2021

 

2020

 

2021

 

2020

 

California

 $50,965  29.1% $42,982  24.6% $95,453  31.0% $75,137  24.0% $51,435  25.7% $50,965  29.1% $97,133  

27.3

% $95,453  31.0%

Federal

 23,504  13.4  18,523  10.6  49,995  16.2% 33,725  10.7  18,847  9.4  23,504  13.4  40,933  

11.5

  49,995  16.2 
Heavy Civil 11,577 6.6 — — 15,071 4.9% — —  26,213 13.1 11,577 6.6 48,227  13.5  15,071 4.9 

Midwest

 38,648  22.1  39,126  22.4  50,151  16.3  73,447  23.4  25,436  12.7  38,648  22.1  45,768  

12.9

  50,151  16.3 

Northwest

 36,787  21.1  48,675  27.9  68,400  22.2  80,867  25.8  51,550  25.7  36,787  21.1  77,457  

21.8

  68,400  22.2 

Water and Mineral Services

 13,433  7.7  25,323  14.5  28,883  9.4  50,577  16.1  26,790  13.4  13,433  7.7  46,427  

13.0

  28,883  9.4 

Total

 $174,914  100.0% $174,629  100.0% $307,953  100.0% $313,753  100.0% $200,271  100.0% $174,914  100.0% $355,945  

100.0

% $307,953  100.0%

Specialty revenue decreased by $0.3 million, or 0.2% for the three months ended June 30, 2020 and increased by $5.8 million, or 1.8%, for the six months ended June 30, 20202021 increased by $25.4 million, or 14.5%, and $48.0 million, or 15.6%, respectively, when compared to 2019. Increases during six months ended June 30, 20202020. These increases were primarily due to increasesdriven by project progression in the California and FederalHeavy Civil operating groups which began the year with higher contract backlog as well as fromgroup, new awards in 2020 in the FederalNorthwest operating group and Heavy Civil operating groups. Increases duringrecovery from the six months ended June 30, 2020 were partially offset by decreasespandemic in the Water and Mineral Services from reduced activities as a result of the COVID-19 pandemic and MidwestService operating group, which began the year with lower contract backlog. Decreases in the Water and Mineral Services from reduced activities as a result of the COVID-19 pandemic andpartially offset by projects nearing completion in the Midwest operating group which began the year with lower contract backlog contributed to the changes during the three and the six months ended June 30, 2020.

group. During the three and six months ended June 30, 20202021 and 20192020, revenue earned in the Specialty segment was from both the public and private sectors.

Materials Revenue 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(dollars in thousands)

 

2020

 

2019

 

2020

 

2019

  

2021

 

2020

 

2021

 

2020

 

California

 $52,229  54.4% $50,962  52.2% $85,496  58.4% $74,027  53.1% $70,490 56.3% $52,229 54.4% $112,446  59.6% $85,496 58.4%

Northwest

 40,685  42.4  40,846  41.8  55,138  37.7  55,378  39.8  50,756  40.5  40,685  42.4  68,161  

36.1

  55,138  37.7 

Water and Mineral Services

 3,118  3.2  5,839  6.0  5,728  3.9  9,885  7.1  3,988  3.2  3,118  3.2  8,084  

4.3

  5,728  3.9 

Total

 $96,032  100.0% $97,647  100.0% $146,362  100.0% $139,290  100.0% $125,234  100.0% $96,032  100.0% $188,691  

100.0

% $146,362  100.0%

Materials revenue for the three months ended June 30, 2020 remained relatively unchanged and increased by $7.1 million, or 5.1%, for the six months ended June 30, 20202021 increased by $29.2 million, or 30.4%, and $42.3 million, or 28.9%, when compared to 20192020 primarily due to an increase in volume as a result of favorable weather during 2020 in the California operating group as compared to 2019.both asphalt and aggregates.

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Contract BacklogCommitted and Awarded Projects

OurEffective during the three months ended June 30, 2021, on a retroactive basis, we renamed contract backlog consiststo Committed and Awarded Projects (“CAP”) and added the general construction portion of construction management/general contractor contracts to the revenue we expectextent contract execution and funding is probable. This is the same presentation used in our quarterly earnings calls and press releases. Prior period amounts have been revised to record in the future on awarded contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. reflect this change.

We generally include a project in our contract backlogunearned revenue at the time a contract is awarded and to the extent we believe contract execution and funding is probable. AwardedCertain government contracts thatwhere funding is appropriated on a periodic basis are included in unearned revenue at the time of the award when it is probable the contract value will be funded and executed. Contract options and task orders are included in unearned revenue when exercised or issued, respectively. Other awards include awarded contracts with unexercised contract options or unissued task orders are included in contract backlog to the extent option exercise or task order issuance is probable. Substantially allprobable, respectively. Other awards also include the general construction portion of construction management/general contractor projects to the contracts in ourextent award, contract backlog may be canceled or modified at the election of the customer; however, we have not been materially adversely affected by contract cancellations or modifications in the past.execution and funding are probable.

Total Contract BacklogCAP by Segment 

     As Restated 
(dollars in thousands) June 30, 2020 March 31, 2020 June 30, 2019  June 30, 2021 March 31, 2021 June 30, 2020 

Transportation

 $2,633,936  74.3% $2,700,336  74.2% $2,993,825  77.2% $2,894,115  65.1% $3,028,893  68.1% $3,251,646  78.0%

Water

 232,133  6.5  241,161  6.6  320,209  8.3  531,858  12.0  339,030  7.6  232,133  5.6 

Specialty

 681,255  19.2  700,588  19.2  562,239  14.5  1,019,318  22.9  1,083,971  24.3  681,255  16.4 

Total

 $3,547,324  100.0% $3,642,085  100.0% $3,876,273  100.0% $4,445,291  100.0% $4,451,894  100.0% $4,165,034  100.0%

Transportation Contract BacklogCAP 

     As Restated 
(dollars in thousands) June 30, 2020 March 31, 2020 June 30, 2019  June 30, 2021 March 31, 2021 June 30, 2020 

Unearned revenue

 $2,626,520  99.7% $2,691,091  99.7% $2,975,535  99.4% $2,075,498  71.7% $2,064,848  68.2% $2,626,520  80.8%

Other awards (1)

 7,416  0.3  9,245  0.3  18,290  0.6  818,617  28.3  964,045  31.8  625,126  19.2 

Total

 $2,633,936  100.0% $2,700,336  100.0% $2,993,825  100.0% $2,894,115  100.0% $3,028,893  100.0% $3,251,646  100.0%

(1) Other awards include awarded contracts with unexercised contract awardsoptions or unissued task orders to the extent we believeoption exercise or task order issuance is probable, respectively, as well as the general construction portion of construction management/general contractor contracts to the extent contract execution and funding is probable.

     As Restated 
(dollars in thousands) June 30, 2020 March 31, 2020 June 30, 2019  June 30, 2021 March 31, 2021 June 30, 2020 

California

 $641,708  24.4% $530,657  19.7% $594,545  19.9% $1,152,327  39.7% $1,130,684  37.3% $923,918  28.4%

Federal

 16,464  0.6  18,152  0.7  80  0.1  7,303  0.3  10,028  0.3  16,464  0.5 

Heavy Civil

 1,188,678  45.1  1,321,442  48.9  1,805,917  60.2  622,490  21.5  774,122  25.6  1,188,678  36.6 

Midwest

 214,016  8.1  208,872  7.7  204,749  6.8  230,184  8.0  258,298  8.5  214,016  6.6 

Northwest

 573,070  21.8  621,213  23.0  388,534  13.0  881,811  30.5  855,761  28.3  908,570  27.9 

Total

 $2,633,936  100.0% $2,700,336  100.0% $2,993,825  100.0% $2,894,115  100.0% $3,028,893  100.0% $3,251,646  100.0%

Transportation contract backlogCAP of $2.6$2.9 billion at June 30, 20202021 was $66.4$134.8 million, or 2.5%4.4%, lower than at March 31, 20202021 primarily due to progress on existing projects and fewer awarded contracts in the Heavy Civil operating group, consistent with our strategy to narrow the footprint of this group, as discussed in the “Current Economic Environment and Outlook” above. Significant new awards during the three months ended June 30, 2021 included a $151.0 million highway construction project in California, a $16.0 million airport project in Alaska, a $44.1 million corridor improvement project in Nevada, a $28.0 million interchange access ramp construction project in Washington, and an $18.7 million road reconstruction project in Utah.

Non-controlling partners’ share of Transportation CAP as of June 30, 2021, March 31, 2021 and June 30, 2020 was $212.1 million, $248.4 million and $280.0 million, respectively. Four contracts in our Transportation segment had total forecasted losses with remaining revenue of $303.1 million, or 10.5%, of Transportation CAP at June 30, 2021.

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Water CAP

(dollars in thousands)

  June 30, 2021   March 31, 2021  June 30, 2020 

Unearned revenue

 $362,713   68.2% $190,253   56.1% $227,864   98.2%

Other awards (1)

  169,145   31.8   148,777   43.9   4,269   1.8 

Total

 $531,858   100.0% $339,030   100.0% $232,133   100.0%

(1) Other awards include awarded contracts with unexercised contract options or unissued task orders to the extent option exercise or task order issuance is probable, respectively, as well as the general construction portion of construction management/general contractor contracts to the extent contract execution is probable.

(dollars in thousands)

  June 30, 2021   March 31, 2021   June 30, 2020 

California

 $44,066   8.3% $27,754   8.2% $61,151   26.3%

Federal

  73   —   100   —   861   0.4 

Heavy Civil

  161,632   30.4   6,791   2.0   34,961   15.1 

Midwest

  —   —   —   —   —   — 

Northwest

  61,891   11.6   24,423   7.2   330   0.1 

Water and Mineral Services

  264,196   49.7   279,962   82.6   134,830   58.1 

Total

 $531,858   100.0% $339,030   100.0% $232,133   100.0%

Water CAP of $531.9 million as of June 30, 2021 was $192.8 million, or 56.9%, higher than at March 31, 2021 primarily due to new awards in the Heavy Civil and Northwest operating groups, partially offset by a higher success rate on bidding activity in California and Midwest operating groups. Significant new awards during the three months ended June 30, 20202021 included a $79.0$160.5 million highway reconstructiondam project and a $10.0 million highway paving project both in California.Texas.

Non-controlling partners’ shareSpecialty CAP

(dollars in thousands)

  June 30, 2021   March 31, 2021   June 30, 2020 

Unearned revenue

 $1,013,810   99.5% $1,070,636   98.8% $681,255   100.0%

Other awards (1)

  5,508   0.5   13,335   1.2   —   — 

Total

 $1,019,318   100.0% $1,083,971   100.0% $681,255   100.0%

(1) Other awards include awarded contracts with unexercised contract options or unissued task orders to the extent option exercise or task order issuance is probable, respectively, as well as the general construction portion of Transportationconstruction management/general contractor contracts to the extent contract backlogexecution is probable.

(dollars in thousands)

  June 30, 2021   March 31, 2021  June 30, 2020 

California

 $155,686   15.3% $165,471   15.2% $122,989   18.0%

Federal

  102,972   10.1   122,256   11.3   123,169   18.1 

Heavy Civil

  172,819   17.0   193,933   17.9   233,068   34.2 

Midwest

  295,446   28.9   350,063   32.3   112,299   16.5 

Northwest

  292,395   28.7   252,248   23.3   89,730   13.2 

Total

 $1,019,318   100.0% $1,083,971   100.0% $681,255   100.0%

Specialty CAP of $1.0 billion as of June 30, 2020, March 31, 2020 and June 30, 20192021 was $280.0 million, $295.4 million and $196.9 million, respectively. Four contracts in our Transportation segment with recorded forecasted losses had remaining revenue of $422.1$64.7 million, or 16.0%, of Transportation contract backlog at June 30, 2020.

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Water Contract Backlog

        As Restated 
(dollars in thousands) June 30, 2020  March 31, 2020  June 30, 2019 

Unearned revenue

 $227,864   98.2% $241,161   100.0% $255,516   79.8%

Other awards (1)

  4,269   1.8   —   —   64,693   20.2 

Total

 $232,133   100.0% $241,161   100.0% $320,209   100.0%

(1) Other awards include contract awards to the extent we believe contract execution and funding is probable.

        As Restated 
(dollars in thousands) June 30, 2020  March 31, 2020  June 30, 2019 

California

 $61,151   26.3% $52,136   21.6% $14,382   4.5%

Federal

  861   0.4   957   0.4%  1,350   0.4 

Heavy Civil

  34,961   15.1   41,511   17.2%  53,327   16.7 

Midwest

  —   —   150   0.1%  110   — 

Northwest

  330   0.1   2,868   1.2%  710   0.2 

Water and Mineral Services

  134,830   58.1   143,539   59.5%  250,330   78.2 

Total

 $232,133   100.0% $241,161   100.0% $320,209   100.0%

Water contract backlog of $232.1 million as of June 30, 2020 was $9.0 million, or 3.7%6.0%, lower than at March 31, 2020. Decreases in the Water and Mineral Services and Heavy Civil operating groups from progress on existing projects was partially offset by an increase in the California operating group from new awards.

Specialty Contract Backlog 

        As Restated 
(dollars in thousands) June 30, 2020  March 31, 2020  June 30, 2019 

Unearned revenue

 $681,255   100.0% $667,776   95.2% $520,432   92.6%

Other awards (1)

  —   —   32,812   4.8   41,807   7.4 

Total

 $681,255   100.0% $700,588   100.0% $562,239   100.0%

(1) Other awards include contract awards to the extent we believe contract execution and funding is probable.

        As Restated 
(dollars in thousands) June 30, 2020  March 31, 2020  June 30, 2019 

California

 $122,989   18.0% $109,016   15.5% $127,930   22.7%

Federal

  123,169   18.1   139,480   19.9   146,516   26.1 

Heavy Civil

  233,068   34.2   240,059   34.3   —   — 

Midwest

  112,299   16.5   142,680   20.4   185,886   33.1 

Northwest

  89,730   13.2   69,353   9.9   101,907   18.1 

Total

 $681,255   100.0% $700,588   100.0% $562,239   100.0%

Specialty contract backlog of $681.3 million as of June 30, 2020 was $19.3 million, or 2.8%, lower than at March 31, 20202021 due to progress on existing projects in the Federal and Midwestall operating groups, partially offset by an increaseincreased awards in the Northwest operating group from a higher success rate on bidding activity. group.

Non-controlling partners’ share of Specialty contract backlogCAP as of June 30, 2020,2021, March 31, 20202021 and June 30, 20192020 was $71.0$61.5 million, $84.3$72.9 million and $94.6$71.0 million, respectively.

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Gross Profit (Loss)

The following table presents gross profit (loss) by business segment for the respective periods:

 

Three Months Ended June 30,

  

Six Months Ended June 30,

 
    

As Restated

 

2020

 

As Restated

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(dollars in thousands)

 

2020

 

2019

    

2019

  

2021

 

2020

 

2021

 

2020

 

Transportation

 $31,197  $499  $56,566  $(15,849) $59,517  $31,197  $95,383  $56,566 

Percent of segment revenue

 5.8

%

 0.1% 6.4

%

 (2.0)% 11.3

%

 5.8

%

 10.9

%

 6.4

%

Water

 12,579  10,502  21,926  18,448  10,563  12,579  19,129  21,926 

Percent of segment revenue

 11.5  9.4  10.4  8.7  9.3  11.5  9.0  10.4 

Specialty

 25,280  21,755  14,561  35,053  24,369  25,280  41,694  14,561 

Percent of segment revenue

 14.5  12.5  4.7  11.2  12.2  14.5  11.7  4.7 

Materials

 19,287  14,002  19,089  10,244  22,497  19,287  24,058  19,089 

Percent of segment revenue

 

20.1

  14.3  13.0  7.4  18.0  20.1  12.7  13.0 

Total gross profit (loss)

 $88,343  $46,758  $112,142  $47,896 

Total gross profit

 $116,946  $88,343  $180,264  $112,142 

Percent of total revenue

 9.6

%

 5.4% 7.2

%

 3.3% 12.1

%

 9.6

%

 11.0

%

 7.2

%

Transportation gross profit for the three and six months ended June 30, 20202021 increased by $30.7$28.3 million, or more than 100%90.8%, and $72.4$38.8 million, or more than 100%68.6%, respectively, when compared to gross loss in 20192020 primarily due to a decrease in the negative net impact from revisions in estimates in our Heavy Civil operating group Old Risk Portfolio, partially offset by projects nearing completion (see Note 54 of “Notes to the Condensed Consolidated Financial Statements”).

Water gross profit for the three and six months ended June 30, 2020 increased2021 decreased by $2.1$2.0 million, or 19.8%16.0%, and $3.5$2.8 million, or 18.9%12.8%, respectively, when compared to 20192020. The decreases were primarily due to reductionan increase in costweather-related costs on one project in the Heavy Civil operating group and increased costs on a California operating group project from lower volume. extended project duration, partially offset by an increase in the Water and Mineral Services operating group from increased revenue.

Specialty gross profit for the three months ended June 30, 2021 remained relatively unchanged when compared to 2020 and increased by $3.5$27.1 million, or 16.2% and $20.5 million, or 58.5%over 100%, for the six months ended June 30, 2020 when compared2021 primarily due to 2019primarily froma decrease in the negative net negative impact from revisions in estimates during the six months ended June 30, 2020 on a tunnel projectin our Midwest operating group (see Note 54 of “Notes to the Condensed Consolidated Financial Statements”).

Materials gross profit for the three and six months ended June 30, 20202021 increased by $5.3$3.2 million, or 37.7%16.6%, and $8.8$5.0 million, or 86.3%26.0%, respectively, when compared to 20192020 due to an increase in volume from favorable weather during 2020 as compared to 2019.in both asphalt and aggregates.

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Selling, General and Administrative Expenses

The following table presents the components of selling, general and administrative expenses for the respective periods:

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 
    

As Restated

       

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(dollars in thousands)

 

2020

 

2019

 

2020

 

2019

  

2021

 

2020

 

2021

 

2020

 

Selling

          

Salaries and related expenses

 $17,351  $15,466  $33,917  $32,454  $16,925  $17,351  $34,641  $33,917 

Restricted stock unit amortization

 306  237  738  1,346  347  306  1,026  738 

Other selling expenses

 1,861  3,993  6,571  7,092  706  1,861  2,249  6,571 

Total selling

 19,518  19,696  41,226  40,892  17,978  19,518  37,916  41,226 

General and administrative

          

Salaries and related expenses

 26,779  24,972  54,914  50,916  28,133  26,779  57,513  54,914 

Restricted stock unit amortization

 703  658  2,122  5,479  995  703  2,331  2,122 
Non-recurring legal and accounting fees 13,549 — 18,714 — 

Other general and administrative expenses

 31,133  25,672  53,087  53,866  26,963  31,023  52,037  52,977 

Total general and administrative

 72,164  51,302  128,837  110,261  56,091  58,505  111,881  110,013 

Total selling, general and administrative

 $91,682  $70,998  $170,063  $151,153  $74,069  $78,023  $149,797  $151,239 

Percent of revenue

 10.0

%

 8.2

%

 11.0

%

 10.4

%

 7.7

%

 8.5

%

 9.2

%

 9.7

%

Selling Expenses

Selling expenses include the costs for estimating and bidding including customer reimbursements for portions of our selling/bid submission expenses (i.e. stipends), business development and materials facility permits. Selling expenses can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities. As projects are completed or the volume of work slows down, we temporarily redeploy project employees to bid on new projects, moving their salaries and related costs from cost of revenue to selling expenses. Selling expenses remained relatively unchanged during bothfor the three and six months ended June 30, 20202021 decreased by $1.5 million, or 7.9%, and $3.3 million, or 8.0%, respectively, when compared to 2019.2020 due to decreases in other selling expenses from reduced estimating and bidding costs.

General and Administrative Expenses

General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions. Other general and administrative expenses include travel and entertainment, outside services, information technology, depreciation, occupancy, training, office supplies, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses. Total generalGeneral and administrative expenses duringfor the three and six months ended June 30, 2020 increased $20.9 million, or 40.7%, and $18.6 million, or 16.8%, respectively,2021 remained relatively unchanged when compared to 2019 due to legal and accounting fees incurred during the six months ended June 30, 2020 that were related to the independent Investigation undertaken by the Audit Committee startingsame periods in February 2020.

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Income Taxes Gain on Sales of Property and Equipment, net

The following table presents the benefit fromgain on sales of property and equipment, net for the respective periods:

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 

(dollars in thousands)

 

2021

  

2020

      

2020

 

Gain on sales of property and equipment, net

 $(31,636) $(1,190) $(34,190) $(1,813)

Gain on sales of property and equipment, net for the three and six months ended June 30, 2021 increased by $30.4 million, or over 100%, and $32.4 million, or over 100%, respectively, when compared to 2020 due to the sale of two properties in California on June 30, 2021, as part of our ongoing asset optimization plan. See Note 12 of “Notes to the Condensed Consolidated Financial Statements” for more information.

Income Taxes

The following table presents the provision for (benefit from) income taxes for the respective periods:

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 
    

2019

   

2019

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
(dollars in thousands) 2020 As Restated 2020 As Restated  

2021

 

2020

 

2021

 

2020

 

Benefit from income taxes

 $(1,782) $(5,913) $(16,492) $(23,263)

Provision for (benefit from) income taxes

 $15,619  $(1,782) $(6,836) $(16,492)

Effective tax rate

 64.7% 21.5% 18.3% 22.2% 21.9% 64.7% 41.7% 18.3%

We calculate our income tax provision at the end of each interim period by estimating our annual effective tax rate and applying that rate to our income (loss) before provision for (benefit from) income taxes. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs. See Note 1715 of “Notes to the Condensed Consolidated Financial Statements” for more information.

Certain Legal Proceedings

As discussed in Note 1816 of “Notes to the Condensed Consolidated Financial Statements,” under certain circumstances the resolution of certain legal proceedings to which we are subject could have direct or indirect consequences that could have a material adverse effect on our financial position, results of operations, cash flows and/or liquidity.

Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents, short-term investments, available borrowing capacity and cash expected to be generated from operations. We may also from time to time access our revolving credit facility, issue and sell equity, debt or hybrid securities or engage in other capital markets transactions. As of June 30, 2020,2021, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and our marketable securities consisted of U.S. Government and agency obligations. Our credit facility consists of a term loan and a revolving credit facility. Of the $275.0 million revolving credit facility capacity, $168.8$226.6 million was available for borrowing at June 30, 2020.2021. See Note 1413 of “Notes to the Condensed Consolidated Financial Statements” for further discussion regarding our credit facility.

Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness and acquire assets or businesses that are complementary to our operations. We believe cash and cash equivalents, short-term investments, available borrowing capacity and cash expected to be generated from operations will be sufficient to meet our expected operating requirements, including the payment expected to be made to settle our securities litigation, which remains subject to court approval, as discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements”, for the next twelve months from the date of this filing. There can be no assurance that sufficient capital will continue to be available in the future or that it will be available on terms acceptable to us.

In evaluating our liquidity position and needs, we consider cash and cash equivalents held by our consolidated construction joint ventures (“CCJVs”). The following table presents our cash, cash equivalents and marketable securities, including amounts from our CCJVs, as of the respective dates:

(in thousands)

 

June 30, 2020

 

December 31, 2019

 

June 30, 2019

  

June 30, 2021

 

December 31, 2020

 

June 30, 2020

 

Cash and cash equivalents excluding CCJVs

 $195,422  $184,141  $29,025  $285,327 $361,317 $195,422 

CCJV cash and cash equivalents (1)

 93,500  78,132  115,933  107,854  74,819  93,500 

Total consolidated cash and cash equivalents

 288,922  262,273  144,958  393,181 436,136 288,922 
Short-term and long-term marketable securities (2) 5,896 32,799 61,037  10,850 5,200 5,896 
Total cash, cash equivalents and marketable securities $294,818 $295,072 $205,995  $404,031 $441,336 $294,818 

(1) The volume and stage of completion of contracts from our CCJVs may cause fluctuations in joint venture cash and cash equivalents between periods. The assets of each consolidated and unconsolidated construction joint venture relate solely to that joint venture. The decision to distribute joint venture assets must generally be made jointly by a majority of the members and, accordingly, these assets, including those associated with estimated cost recovery of customer affirmative claims and back charge claims, are generally not available for the working capital needs of Granite until distributed.
(2) All marketable securities were classified as held-to-maturity and consisted of U.S. and agency obligations as of all periods presented.

Granite’s portion of CCJV cash and cash equivalents was $55.1$62.3 million, $44.3$42.6 million and $67.4$55.1 million as of June 30, 2020,2021, December 31, 20192020 and June 30, 2019,2020, respectively. Excluded from the table above is Granite’s portion of unconsolidated construction joint venture cash and cash equivalents of $65.6$47.5 million, $60.4$58.9 million and $69.4$65.6 million as of June 30, 2020,2021, December 31, 20192020 and June 30, 2019,2020, respectively. 

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Cash Flows

 

Six Months Ended June 30,

 
    

As Restated

  

Six Months Ended June 30,

 

(in thousands)

 

2020

 

2019

  

2021

 

2020

 

Net cash provided by (used in):

      
Operating activities $12,483 $(93,515) $(31,004) $12,483 

Investing activities

 (21,407) (47,926) 1,661  (21,407)

Financing activities

 31,250  13,595  (13,612) 31,250 

Operating activities

As a large infrastructure contractor and construction materials producer, our revenue, gross profit and the resulting operating cash flows can differ significantly from period to period due to a variety of factors, including seasonal cycles, our projects’ progressions toward completion, outstanding contract change orders and affirmative claims, and the payment terms of our contracts.

Additionally, operating cash flows are impacted by the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform, including claim and back charge settlements.

Our working capital assets result from both public and private sector projects. Customers in the private sector can be slower paying than those in the public sector; however, private sector projects generally have higher gross profit as a percentage of revenue. While we typically invoice our customers on a monthly basis, our contracts frequently provide for retention that is a specified percentage withheld from each payment by our customers until the contract is completed and the work accepted by the customer which can cause fluctuations in operating cash flows.

Cash provided byused in operating activities of $12.5$ 31.0 million for the  six months ended June 30, 20202021 represents a $106.0$ 43.5 million increasedecrease when compared to cash used inprovided by operating activities in 2019.the same period of  2020. The change was primarily due to a $87.9$41.0 million increase in cash provided by working capital, a $27.6 million decrease in net contributions to unconsolidated joint ventures and affiliates and a $9.5 million increase in cash provided by net loss after adjusting for non-cash items.items, a $ 45.1 million increase in cash used in working capital and a $23.5 million increase in contributions, net of distributions, to unconsolidated joint ventures and affiliates. The increase in cash provided byused in working capital was primarily due to increasesincreased activity from CCJVs.CCJVs, partially offset by a decrease in cash used by accounts payable from payment timing differences.

Related to the securities litigation settlement, which remains subject to court approval, discussed in Note 16 of “Notes to the Condensed Consolidated Financial Statements,” we have separately presented the $129.0 million liability and the associated $63.0 million insurance receivable in the condensed consolidated statement of cash flows. During the six months ended June 30, 2021, there was no impact on operating cash flow as both are expected to settle during the second half of 2021, subject to court approval.

Investing activities

Cash used inprovided by investing activities of $21.4$1.7 million for the six months ended June 30, 20202021 represents a $26.5$23.1 million increase when compared to 20192020 primarily due to anfrom the sale of two properties in California. This increase was partially offset by a decrease in proceeds from maturities ofand called marketable securities.

Financing activities

Cash provided byused in financing activities of $31.3$13.6 million for the six months ended June 30, 20202021 represents a $17.7$44.9 million increasedecrease when compared to 2019. The change was2020 primarily due to a decrease in debt proceeds, partially offset by an increase in debt proceeds,contributions from non-controlling partners, net of payments.distributions.

Capital Expenditures

During the six months ended June 30, 2020,2021, we had capital expenditures of $52.2$46.4 million compared to $54.4 millionto $52.2 million during 2019.2020. Major capital expenditures are typically for aggregate and asphalt production facilities, aggregate reserves, construction equipment, buildings and leasehold improvements and investments in our information technology systems. The timing and amount of such expenditures can vary based on the progress of planned capital projects, the type and size of construction projects, changes in business outlook and other factors. During the year ended December 31, 2020,We currently anticipate 2021 capital expenditures were approximately $90.0 million.to be $100.2 million for the full year.  

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Derivatives

We recognize interest rate and commodity swap derivative instruments as either assets or liabilities at fair value using Level 2 inputs in the condensed consolidated balance sheets. See Note 109 to “Notes to the Condensed Consolidated Financial Statements” for further information. The hedge option and warrant derivative transactions related to the 2.75% Convertible Notes were recorded to equity on our condensed consolidated balance sheets based on the cash proceeds. See Note 14 to “Notes to the Condensed Consolidated Financial Statements” for further information.

Surety Bonds and Real Estate Mortgages

We are generally required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts. At June 30, 2020, approximately $3.3 

2021, approximately $3.0 billion of our contract backlogCAP was bonded. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds after the owner accepts the work performed under contract. The ability to maintain bonding capacity to support our current and future level of contracting requires that we maintain cash and working capital balances satisfactory to our sureties.

Our investments in real estate affiliates are subject to mortgage indebtedness. This indebtedness is non-recourse to Granite but is recourse to the real estate entities. The terms of this indebtedness are typically renegotiated to reflect the evolving nature of the real estate projects as they progress through acquisition, entitlement and development. Modification of these terms may include changes in loan-to-value ratios requiring the real estate entity to repay portions of the debt. Our unconsolidated investments in our foreign affiliates are subject to local bank debt primarily for equipment purchases and working capital. This debt is non-recourse to Granite, but it is recourse to the affiliates. The debt associated with our unconsolidated non-construction entities is included in Note 1211 of “Notes to the Condensed Consolidated Financial Statements.”

Covenants and Events of Default

Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75% Convertible Notes or our Credit Agreement would constitute an event of default under the indenture governing our 2.75% Convertible Notes or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any lien securing the obligations under such facility. A default under the indenture governing our 2.75% Convertible Notes could result in acceleration of the maturity of the notes.

The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of June 30, 2020,2021, the Consolidated Leverage Ratio was 2.27,1.69, which did not exceed the maximum of 3.25.3.00. Our Consolidated Interest Coverage Ratio was 7.89,8.26, which exceeded the minimum of 4.00. To accommodate the delays in filing our financial statements, we entered into amendments with our lenders to extend the deadline for filing the 2019 Annual Report on Form 10-K and all of our 2020 Quarterly Reports on Form 10-Qs to February 28, 2021. 

Share Repurchase Program

As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $200.0 million of our common stock at management’s discretion. As part of this authorization we have established a plan to facilitate common stock repurchases. As of June 30, 2020,2021, $157.2 million of the authorization remained available. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.

Website Access

Our website address is www.graniteconstruction.com. On our website we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information on our website is not incorporated into, and is not part of, this report. These reports, and any amendments to them, are also available at the website of the SEC, www.sec.gov.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no significantmaterial change in our exposure to market risk when compared to thosefrom what was previously disclosed in our 20192020 Annual Report on Form 10-K.

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Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on their evaluation asof our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the end of the period covered by this reportExchange Act) as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 of the Exchange Act, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)were not effective as of the Exchange Act) were not effectiveend of the period covered by this report due to material weaknesses previously disclosed in our 2019 Annual Report on Form 10-K.10-K for the year ended December 31, 2020 (the “material weaknesses”). In light of the material weaknesses in our internal control over financial reporting, we performed extensive additional analysis and other procedures to validate that our financial information contained in this Form 10-Q was prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Following such additional analysis and procedures, our management, including our principal executive officer and principal financial officer, has concluded that our financial statements state fairly, in all material respects, our financial position, results of our operations and our cash flows for the periods presented in this Form 10-Q, in conformity with U.S. GAAP.

ChangesRemediation Plan and Status

As disclosed in Internal Control over Financial Reporting

There were no changes toour 2020 Annual Report on Form 10-K, Company management, with the assistance of outside consultants, began reviewing and revising our internal control over financial reporting in 2020 in response to the material weaknesses identified in connection with the Audit/Compliance Committee’s independent Investigation. Management has evaluated the impact of the material weaknesses and has developed and implemented a plan to remediate the control deficiencies that occurred duringcontributed to the quarter ended June 30,material weaknesses. To date, we have taken the following actions to remediate the material weaknesses:

●we implemented oversight, training and communication programs to reinforce: (1) our ethical standards and Code of Conduct across the Company, which emphasized, among other things, the purpose and availability of the anonymous whistleblower hotline, (2) the responsibilities and obligations of public company officers, (3) our cost forecasting processes and policies, including proper and contemporaneous documentation to support cost forecast adjustments, (4) the principles and requirements of each cost forecasting control and (5) reporting communication protocols for internal audit reports;
●we implemented additional internal controls related to cost forecasts including reviews from individuals who are independent of the operating group; and

●

we took appropriate personnel actions, including separations, dismissals and changes in leadership and/or responsibilities and implemented other organizational changes, including changes in reporting structures.

We will continue to execute and monitor the newly implemented programs, processes and controls that were implemented as part of our remediation plan. However, the material weaknesses described in our 2020 Annual Report on Form 10-K will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Additionally, we may take additional measures to address the control deficiencies or modify the remediation plan described above.

Changes in Internal Control Over Financial Reporting

Except for the changes implemented as part of our remediation plan discussed above, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.reporting during the quarter ended June 30, 2021. 

PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which cannot be predicted with certainty. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes which cannot be predicted with certainty.

SomeThe description of the matters set forth in which we or our joint ventures and affiliates are involved may involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or paymentPart I, Item I of our costs could be disallowed. While anythis Report under Note 16 of our pending legal proceedings may be subject to early resolution as a result of our ongoing efforts to resolve the proceedings, whether or when any legal proceeding will be resolved is neither predictable nor guaranteed.

Accordingly, it is possible that future developments in such proceedings and inquiries could require us to (i) adjust existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. In addition to matters that are considered probable for which the loss can be reasonably estimated, disclosure is also provided when it is reasonably possible and estimable that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the amount recorded.

Liabilities relating to legal proceedings and government inquiries,“Notes to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in the consolidated balance sheets. The aggregate liabilities recorded as of June 30, 2020 and 2019 related to these matters were immaterial. The aggregate range of possible loss related to (i) matters considered reasonably possible, and (ii) reasonably possible amounts in excess of accrued losses recorded for probable loss contingencies, including those related to liquidated damages, could have a material impact on our consolidated financial statements if they become probable and the reasonably estimable amountCondensed Consolidated Financial Statements” is determined.

On August 13, 2019, a securities class action was filed in the United States District Court for the Northern District of California against the Company, James H. Roberts, our former President and Chief Executive Officer, and Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer. An Amended Complaint was filed on February 20, 2020 that, among other things, added Laurel Krzeminski, our former Chief Financial Officer, as a defendant. The amended complaint is brought on behalf of an alleged class of persons or entities that acquired our common stock between April 30, 2018 and October 24, 2019, and alleges claims arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Amended Complaint seeks damages based on allegations that in the Company’s SEC filings the defendants made false and/or misleading statements and failed to disclose material adverse facts about the Company’s business, operations and prospects. On May 20, 2020, the Court denied, in part, the Defendants’ Motion to Dismiss the Amended Complaint.  On January 21, 2021, the Court granted Plaintiff’s motion for class certification.  We are in the pretrial stages of the litigation, and we cannot predict the outcome or consequences of this case, which we intend to defend vigorously. 

On October 23, 2019, a putative class action lawsuit was filed in the Superior Court of California, County of Santa Cruz against the Company, James H. Roberts, our former President and Chief Executive Officer; Laurel Krzeminski, our former Chief Financial Officer, and the then-serving Board of Directors on behalf of persons who acquired shares of Company common stock in the Company’s June 2018 merger with Layne. The complaint asserts causes of action under the Securities Act of 1933 and alleges that the registration statement and prospectus were negligently prepared and included materially false and misleading statements and failed to disclose facts required to be disclosed. On August 10, 2020, the Court sustained our demurrer dismissing the complaint with leave to amend.  On September 16, 2020, the plaintiff filed an amended complaint asserting causes of action under the Securities Act of 1933 against the previously named defendants and PricewaterhouseCoopers LLP.  We have filed a demurrer seeking to dismiss the amended complaint. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of the case, which we intend to defend vigorously.

On May 6, 2020, a stockholder derivative lawsuit was filed in the United States District Court for the Northern District of California against James H. Roberts, our former President and Chief Executive Officer, Jigisha Desai, our former Senior Vice President and Chief Financial Officer and current Executive Vice President and Chief Strategy Officer, Laurel Krzeminski, our former Chief Financial Officer, and our then-current Board of Directors (collectively, the “Individual Defendants”), and the Company, as a nominal defendant, asserting claims for breach of fiduciary duty, unjust enrichment, and violations of the Securities Exchange Act of 1934 that occurred between April 30, 2018 and October 24, 2019. The lawsuit alleges that the Individual Defendants knowingly inflated the Company’s revenue, income, and margins in violation of U.S. GAAP, which caused the results during the relevant periods to be materially false and misleading. The Complaint seeks monetary damages and corporate governance reforms. The Court has ordered that the lawsuit in the derivative action be stayed until further order of the Court or until entry of a final judgment in the putative securities class action lawsuit filed in the United States District Court for the Northern District of California. We are in the preliminary stages of the litigation and, as a result, we cannot predict the outcome or consequences of this case, which we intend to defend vigorously.

As of June 30, 2020, no liability related to above matters was recorded because we have concluded such liabilities are not probable and the amounts of such liabilities are not reasonably estimable.

In connection with our disclosure of the Audit Committee’s independent Investigation, we voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding that Investigation. The SEC has issued us subpoenas for documents in connection with the independent Investigation. We have produced documents to the SEC regarding the accounting issues identified during the independent Investigation and will continue to cooperate with the SEC in its investigation.incorporated herein by reference.

Item 1A.

RISK FACTORS

There have been no material changes in the risk factors previously disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information regarding the repurchase of shares of our common stock during the three months ended June 30, 2020:2021:

Period

 

Total number of shares purchased (1)

  

Average price paid per share

  

Total number of shares purchased as part of publicly announced plans or programs

  

Approximate dollar value of shares that may yet be purchased under the plans or programs (2)

 

April 1, 2020 through April 30, 2020

  1,499  $16.37   —  $157,165,044 

May 1, 2020 through May 31, 2020

  706  $15.96   —  $157,165,044 

June 1, 2020 through June 30, 2020

  2,006  $18.15   —  $157,165,044 
   4,211  $17.15   —     

Period

 

Total number of shares purchased (1)

  

Average price paid per share

  

Total number of shares purchased as part of publicly announced plans or programs

  

Approximate dollar value of shares that may yet be purchased under the plans or programs (2)

 

April 1, 2021 through April 30, 2021

  —  $—   —  $157,165,044 

May 1, 2021 through May 31, 2021

  375  $41.72   —  $157,165,044 

June 1, 2021 through June 30, 2021

  4,607  $46.23   —  $157,165,044 
   4,982  $45.89   —     

(1) On June 2, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan, which replaced the Amended and Restated 2012 Equity Incentive Plan. The number of shares purchased is in connection with employee tax withholding for restricted stock units vested under our 2012 and 2021 Equity Incentive Plan.Plans.
(2) As announced on April 29, 2016, on April 7, 2016, the Board of Directors authorized us to repurchase up to $200.0 million of our common stock at management’s discretion. As part of this authorization we have established a share repurchase program to facilitate common stock repurchases. We did not purchase shares under the share repurchase plan in any of the periods presented. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.

 

Item 4.

MINE SAFETY DISCLOSURES

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17CFR 229.104) is included in Exhibit 95 to this Quarterly Report on Form 10-Q.

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Item 6.

EXHIBITS

 

10.1

†

*

Amendment No. 4Stipulation and Agreement of Settlement, dated as of April 29, 2021 [Incorporated by reference to Third Amended and Restated Credit Agreement, dated June 19, 2020, by and amongExhibit 10.1 to the Company, Company’s Current Report on Form 8-K filed on April 30, 2021]

10.2*Granite Construction Company, and GILC Incorporated as borrowers, Bank2021 Equity Incentive Plan [Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 4, 2021]
10.3*Form of America, N.A., as Administrative Agent, andNon-Employee Director Restricted Stock Unit Agreement [Incorporated by reference to Exhibit 10.3 to the lenders party theretoCompany’s Current Report on Form 8-K filed on June 4, 2021]

10.4*Form of Employee Service Award Restricted Stock Unit Agreement [Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 4, 2021]
10.5*Form of Employee TSR Award Restricted Stock Unit Agreement [Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on June 4, 2021]

31.1

 

†

 

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

 

†

 

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32

 

††

 

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

95 † Mine Safety Disclosure

101.INS

 

†

 

Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document)

101.SCH

 

†

 

Inline XBRL Taxonomy Extension Schema

101.CAL

 

†

 

Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF

 

†

 

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB

 

†

 

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE

 

†

 

Inline XBRL Taxonomy Extension Presentation Linkbase

104

 

†

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

 

*

 

Incorporated by reference

 

 

†

 

Filed herewith

 

 

††

 

Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

 

GRANITE CONSTRUCTION INCORPORATED

 

 

 

 

 

 

 

 

Date:

February 25,July 29, 2021

 

 

 

By:

 

/s/ Elizabeth L. Curtis

 

 

 

 

 

 

 

Elizabeth L. Curtis

 

 

 

 

 

 

 

Executive Vice President and Chief Financial Officer

 

 

 

 

 

 

 

(Duly Authorized Officer and Principal Financial and Accounting Officer)

 

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